Not-for-profit Update #2

  • Not-for-profit

Aimed at registered charities and other
not-for-profits, our Not-for-profit Update provides you an overview of recent External Reporting Board activities — new or revised standards, other news and financial reporting matters you will find useful.

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In this issue we cover...

  • Financial reporting landscape 
  • Incorporated Societies legislative reform—where's this got to? 
  • New PBE standards for Tier 1 and Tier 2 
  • Open for comment
  • More on small charities' assurance needs 

Financial reporting landscape 

Financial reporting landscape

The current accounting standards framework— a multi-standards, multi-tiered approach—was finalised back in 2012. This introduced new accounting requirements specifically tailored for NFPs. 

Included were two simple format reporting standards for Tiers 3 and Tier 4, accompanied by guidance and templates to make it easier for entities to apply these standards.

Now that these standards have been in place for a few years, we thought it would be interesting to look at the distribution of registered charities across the tiers, together with how the reporting standards have bedded-in since April 2015.

Recent statistics show that there are 1,088 Tier 1 and Tier 2 charities—only 4% of all registered charities. Tier 3 and Tier 4 entities, however, together number 26,214 (96%)—with Tier 3 at 24% and Tier 4 at 72% of all registered charities.  

Our Tier 3 and Tier 4 simple format reporting standards and requirements therefore apply to 96% of all registered charities, while the more comprehensive Public Benefit Entity (PBE) Standards apply only to those in Tier 1 and Tier 2.

Pie Chart showing registered charities by reporting tier

Distribution of registered charities by tier
(Source: Charities Services, Department of Internal Affairs)

Let's look at the uptake of those reporting standards and requirements by the different tiers.

Uptake by Charities of accounting standards

Uptake of accounting standards 2017-2018
(Source: Charities Services, Department of Internal Affairs)

    • All the registered charities in Tier 1 and Tier 2 had adopted the relevant standards and reporting requirements by 2018.
    • For Tier 3 registered charities, adoption increased to 95% for the 2018 year. 
    • For Tier 4 registered charities, while the uptake has been slower, there was still a 15% increase for the 2018 year. 

Following the introduction of this new reporting framework, we think it has bedded in well, with only the Tier 4 entities—large in number and low in resources—being slower to take up the standards.  

Incorporated Societies legislative reform—
where's this got to?

incorporation imageBack in 2015 the Ministry of Business, Innovation and Employment (MBIE) exposed a draft Bill to update the Incorporated Societies Bill 1908.

This was to include—amongst other things—updated financial reporting requirements.

pie chart with breakdown of incorporated societies and charities MBIE received submissions on the draft bill, and has now prepared a draft Cabinet Paper for the Minister of Commerce and Consumer Affairs.

72% of all incorporated societies are not registered charities and they do not currently report using the rules that registered charities must apply for their financial reporting.  

The original draft Bill in 2015 proposed that incorporated societies would follow similar reporting requirements as currently applied by registered charities.

Any changes subsequent to the submissions process have not yet been announced by MBIE.  We expect the Incorporated Societies Bill to be introduced into Parliament during 2019, although there is no firm timetable at this stage.

* Allows taxpayers to claim a tax rebate for donations to that entity.

New PBE Standards 

Tier 1 and Tier 2

There are some new standards coming into effect in the next few years:

StandardNameEffective date —periods beginning on or after:
PBE IPSAS 34-38  Accounting for interests in other entities 1 Jan 2019
PBE IPSAS 39  Employee Benefits 1 Jan 2019
PBE FRS 48 Service Performance Reporting 1 Jan 2021

The five new standards PBE IPSASs 34-38 cover accounting for controlled entities, associates and joint ventures. They are based on IFRS 10-12,  IAS 27 and IAS 28 and will replace the current PBE IPSASs 6 to 8 on interests in other entities. 

PBE IPSAS 39 provides convergence with NZ IAS 19 Employee Benefits for public sector and not-for-profit entities.

Service performance reporting has been a requirement for Tier 3 and Tier 4 NFP entities since we first issued the simple format reporting standards. We have since developed service performance reporting requirements for Tier 1 and Tier 2 NFPs . 

Now PBE FRS 48, issued in November 2017, establishes those requirements for selecting and presenting service performance information.

If your entity is in either Tier 1 or Tier 2, you will be required to provide information about your service delivery for community or social benefit in your financial reports for reporting periods beginning on or after 1 January 2021.

You can early adopt all these new standards before their effective dates.

Open for comment

Tier 1 and Tier 2

The XRB is currently working on a number of standard-setting projects that apply to NFPs. These include standards developed domestically by the New Zealand Accounting Standards Board (NZASB) and standards developed internationally by the International Public Sector Accounting Standards Board (IPSASB). Standards issued by the IPSASB are used as the starting point for developing our Tier 1 and Tier 2 PBE Standards (which are applied by both public sector and NFP PBEs).

Some of the current PBE standard-setting projects in development include:

Domestic projects

  • Amendments to Appendix A: When is an Entity a PBE? of XRB A1 Application of the Accounting Standards Framework
  • PBE Combinations (currently open for comment and discussed below)

IPSASB projects

  • Recognition of revenue transactions and non-exchange expense transaction (including the accounting for grants)
  • Accounting for leases 
  • Measurement of assets and liabilities upon initial recognition and subsequent accounting periods

Our NZASB Summary Work Plan lists all our current standards-setting projects.

Have a look

We normally issue all proposed standards or amendments to current standards resulting from these projects for consultation in New Zealand.

Our NZASB Update newsletter provides you a regular update on new standards or amending standards open for comment.

Want to receive our NZASB Update? Sign up here 

Open for comment right now

We have recently put out for comment NZASB ED 2018-4 PBE Combinations

The New Zealand PBE standard will be based on IPSAS 40 Public Sector Combinations.  This has a broader scope than PBE IFRS 3 Business Combinations and contains additional requirements for accounting for amalgamations.

The consultation closes at the end of January next year. 

Access the ED 

Register for our PBE Combinations webinar 

webinar blocks

To find out more, why not register for our webinar on PBE Combinations set down for 12:00PM-1:00PM on Wednesday 14 November.

We will provide an overview and cover:

  • the significant differences between the ED and the current requirements in PBE IFRS 3 Business Combinations;
  • classifying a combination as an amalgamation or an acquisition;
  • accounting for acquisitions and amalgamations;

plus there will be time for you to ask questions. 

Register here

More on small charities' assurance needs

Small Charities' Assurance Needs booklet cover

The NZ Auditing and Assurance Standards Board (NZAuASB) has decided at its September 2018 meeting to establish a working group to explore developing an alternative assurance engagement for small not-for-profit entities and charities.

 We will update you as this progresses.

If you are unfamiliar with the issues involved, why not have a look at the booklet?


This Not-for-profit Update is intended to provide you with a summary of the recent activities of the External Reporting Board (XRB). Links to websites are correct at the time of publication. You should not rely on this newsletter as a definitive publication of updates. The External Reporting Board does not guarantee, and accepts no legal liability whatsoever arising from or connected to the accuracy, reliability, currency, timeliness or completeness of this newsletter. The information contained in this newsletter does not constitute advice and should not be relied upon as such.