Incorporated societies
This page provides a series of questions designed to help societies registered under Incorporated Societies Act 2022 (2022 Act) to determine which set of standards apply to them. It will not necessarily reflect all circumstances, and should be used as a guide only.
XRB cannot provide individual advice. Societies are solely responsible for determining which standards apply to them. If they are in doubt about which standards are relevant to them, we recommend societies seek professional advice.
On 24 August 2022 the XRB presented a webinar hosted by the Ministry of Business, Innovation and Employment (MBIE) about the financial reporting requirements under the 2022 Act. A copy of the slides from this event can be downloaded below.
Webinar slides - Financial reporting requirements
The Incorporated Societies Act 2022 (2022 Act) was passed into law in April 2022 replacing the Incorporated Societies Act 1908 (1908 Act). It updates the legal, governance and accountability settings for incorporated societies, modernises the regime and prescribes new financial reporting requirements.
The 1908 Act included a requirement to prepare annual financial statements, but a society was not required to follow any reporting standards. Instead, the 2022 Act requires larger societies to prepare their financial statements using XRB accounting standards.
The Government recognised that the preparation of reliable and understandable financial reports is an indispensable element of a Society’s accountability to other members for the efficient and effective use of the resources under their control. It was also recognised that due to the significant contribution Society’s make to the wellbeing of New Zealand communities, it was important that they have standardised reporting requirements.
No, the new Incorporated Societies Act does not change the reporting requirements for registered charities.
Societies which are registered charities are already required to apply XRB Accounting Standards under section 42A of the Charities Act 2005. However, there may be other changes in the 2022 Act which do affect your society. More information on these other changes can be found on the New Zealand Companies Office website and the Charities Services website.
All societies except those that are ‘small’ will be required to prepare their annual financial statements in accordance with Accounting Standards issued by the XRB.
Societies that are ‘small’ have a choice between preparing their annual financial statements in accordance with XRB accounting standards or in accordance with the “minimum requirements for financial statements of small societies”.
Many incorporated societies who are also registered charities are already required to apply XRB Accounting Standards, the 2022 Act does not change any of the existing reporting requirements for registered charities.
Under section 103 of the Incorporated Societies Act 2022 a society is considered small if:
- it spent (had total operating payments) less than $50,000 in each of the 2 preceding financial years; and
- it had total current assets of less than $50,000 at the end of the 2 preceding financial years; and
- it is not a 'donee organisation' for tax purposes
Total operating payments the total of all payments made by your society either in cash or from your bank account during the year (including grant payments and income tax payments), except for capital payments.
Capital payments are those related to purchasing assets which your society will use for more than 12 months. For example , purchasing a vehicle or a building would generally be a capital payment. Repayments of long term liabilities would also be capital payments - for example, loan or mortgage repayments (except interest payments, which are operating payments).
If your society controls any other entities (for example, a company) total operating payments is the operating payments of the society and the operating payments of the other entities added together.
Note the term total operating payments differs from total expenses (see below)
The definition of current assets will be set by forthcoming regulations. The current draft wording defines current asset as total assets excluding fixed assets, where fixed assets are those items of property, plant, and equipment which are not expected to be sold within twelve months after the society’s balance date.
For the most up to date information on these regulations refer to the New Zealand Companies Office website.
Donee organisations are organisations who have arranged with Inland Revenue for their donors to receive tax benefits for any donations made. If your society just has a letter from Inland Revenue recognising it as a not-for-profit, that’s not enough to be considered a donee organisation.
A Society which meets the criteria of a “small society” (see above) may choose to use the minimum requirements set out in section 104 of the 2022 Act. Financial statements prepared under this section must contain the following information:
- the income and expenditure, or receipts and payments, of the society during the accounting period; and
- the assets and liabilities of the society at the close of the accounting period; and
- all mortgages, charges, and other security interests of any description affecting any of the property of the society at the close of the accounting period.
Requirements for how this information should be presented will be set out in separate regulations which have yet to be issued. If your society intends to use the minimum requirements, up to date information can be found on the New Zealand Companies Office website.
Despite the financial statements prepared under this section do not need to follow reporting requirements set in the Accounting Standards issued by the XRB, the Accounting Standards can provide useful reporting templates and definitions of terms used in section 104 - see the Tier 4 PBE Accounting Standards issued by XRB. The society can voluntarily elect to prepare financial reports in accordance with standards issued by the XRB.
If your society is not a “small society” it has to follow XRB standards.
To find which standards apply to your society you will first need to determine whether it’s a for-profit entity or a public benefit entity (PBE). This classification is important because there are some important differences between the standards that apply to for-profit entities and those that apply to PBEs.
We expect that most societies will be not-for profit PBEs and will therefore use the not-for-profit Accounting Standards.
PBEs are “entities where the primary objective is to provide goods or services for community or social benefit and where any equity has been provided with a view to supporting that primary objective rather than for a financial return to equity holders.”
If a society does not meet the PBE definition above, it is a for-profit entity. In many cases, it will be obvious whether a society is a PBE. For example, most registered charities are likely to be PBEs. If it is not clear whether your society meets the definition of a PBE, Appendix A of XRB A1 provides more guidance.
Not-for-profit PBEs are PBEs that are not public sector PBEs. Public sector PBEs (known as PS PBEs) are PBEs that are public entities as defined in the paragraph 5 of Public Audit Act 2001 and includes all Offices of Parliament. Examples include all public service departments, crown entities, educational bodies (such as schools and universities), state enterprises, airport companies, licensing trusts, local authorities and councils, council-controlled organisations, port companies, community trusts.
We expect that most societies will be not-for-profit PBEs.
We know that smaller entities often have limited resources and that readers of their Financial Statements often need less information. To reflect this there are four different tiers of reporting requirements for not-for-profit PBEs. Having the Tiers allows smaller entities to have simpler reporting requirements which are easier to understand and follow.
The Tier that applies to your entity will mainly* depend on your entity’s size which is based on its “total expenses”.
| Tier | Society type | Standards | Link to PBE not-for-profit Standards |
|---|---|---|---|
| 1 | Large PBE with total expenses > $30 million | PBE Standards | Tier 1 & 2 not-for-profit PBE Standards |
| 2 | Large PBE with total expenses < $30 million and > $2 million | PBE Standards Reduced Disclosure Regime (PBE Standards RDR) | Tier 1 & 2 not-for-profit PBE Standards |
| 3 | PBE with total expenses $2 million or less but total operating payments > $140,000 | PBE Simple Format Reporting Standard - Accrual (SFR-A) | Tier 3 not-for-profit PBE Standard |
| 4 | PBE with total operating payments less than $140,000 | RBE Simple Format Reporting Standard - Cash (SFR-C) | Tier 4 not-for-profit PBE Standard |
* You will also be a Tier 1 entity if you have "public accountability" as defined in XRB A1.
The Tier your society falls into will set out the “lowest” requirements it is allowed to apply. However, your society is allowed to apply the requirements of any “higher” Tier. For example, a society may prefer to apply the accrual accounting requirements of Tier 3 because it provides a more complete picture of its assets and liabilities than the cash-based requirements of Tier 4.
Similarly, a small society is not required to prepare its financial statements in accordance with Accounting Standards issued by the XRB but they may decide to apply the Tier 4 Standard.
Total expenses are the total expenses (including any losses and grant expenses), recognised in a society’s surplus or deficit for the year. A surplus or deficit is defined as the total of revenue less expenses.
If your society controls any other entities (for example, a company) and prepares its financial statements for the group, total expenses is the expenses of the society and the expenses of the other entities added together.
Total expenses is different from total operating payments (see above).
The Tier 3 Not-for-Profit Standard is accrual-based.
Being accrual-based means the Tier 3 Standard follows traditional accrual accounting ‘rules’ like the Tier 1 and Tier 2 Standards. However, the requirements in the Tier 3 Standard are substantially reduced and simplified compared to the requirements in Tier 1 and Tier 2 and were designed to be used by smaller entities.
The Tier 3 Standard requires your society to provide information about its financial performance and position, together with non-financial information about its objectives and the activities it has carried out during the financial year.
| Statement of service performance | Non-financial information about activities and objectives |
| Statement of financial performance | Revenue and expenses |
| Statement of financial position | Assets, liabilities, accumulated funds |
| Statement of cash flows | Cash received and cash paid |
| Statement of accounting policies | How the entity has done its accounting |
| Notes | More detailed information about key items |
Additional resources on applying this Standard when preparing Tier 3 Performance Reports are available on the XRB website, including an optional Tier 3 Reporting Template and accompanying Explanatory Guide.
The Tier 4 Not-for-Profit (NFP) Standard is cash-based.
The Tier 4 Standard requires your society to report the cash it received and the cash it paid during the financial year (i.e., the transactions recorded in an entity’s bank account(s) and any cash on hand).
The Tier 4 Standard also requires your society to report non-financial information about its objectives and the activities it has carried out during the financial year.
| Statement of service performance | Non-financial information about activities and objectives |
| Statement of cash received and cash paid | Cash received and cash paid |
| Accounting policies and notes |
Information about:
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Additional resources on applying this standard are available on the XRB website, including an optional Tier 4 Reporting Template and accompanying Explanatory Guide.
The Statement of Service Performance intends to provide information about why the entity exists, what it hopes to achieve, and what it has done during the year towards achieving its objectives.
It provides following information:
- Your society’s objectives over the medium to long-term;
- The key types activities your society carried out during the year to achieve its objectives; and
- Quantify to the extent practicable the significant activities undertaken during the year.
This helps societies to effectively communicate their key achievements and remain accountable to their members, donors and the general public. Many organisations find including this information helps to show a more complete picture of what they have achieved over the past year with the resources they have available.
When deciding what information to include, your society should think about how to give a complete and balanced picture of what has been achieved without overwhelming readers by reporting too much information.
Tier 3 and Tier 4 Standards do not require you to use a particular format, your society can present the information in whatever way it thinks will best “tell its story”. A simple example layout is included in the optional Tier 3 and Tier 4 Reporting Templates available on our website as a starting point.
If you want to find a good example statement of service performance, we recommend looking at the winners of the Chartered Accountants Australia and New Zealand (CA ANZ) Charity Reporting Awards. You can find the 2021 and 2022 winners on the CA ANZ website including examples across all four tiers of reporting.
Once your society registers (or re-registers) under the 2022 Act, it will have to start using XRB accounting standards when preparing its financial statements, unless it qualifies as a ‘small society‘. Until then, societies will continue to operate under the existing legislation (1908 Act) and therefore are required to prepare annual financial statements but are not required to follow any reporting standards.
For more information on when these requirements will apply for your society, refer to the New Zealand Companies Office website.
Under the 1908 Act, societies that are not registered as charities do not have to have their financial statements checked by an independent auditor. Under the 2022 Act, that will change and societies exceeding certain level of annual spendings will have to have their financial statements audited. The threshold will be set by forthcoming regulations.
For the most up to date information on these regulations refer to the New Zealand Companies Office website.
Societies that are also registered charities already have to have their financial statements examined by an independent auditor in some circumstances. This will not change as a result of the 2022 Act.