FAQs Tier 1 & 2

These FAQs are grouped into sections. We have included reference to the relevant Standard(s) and Explanatory Guide(s) where they apply. 

The Charities Services website also provides general guidance information for Tier 1 and Tier 2 not-for-profit public benefit entities, including FAQs.  

These FAQs provide general guidance only. They do not constitute, nor are a substitute for seeking professional advice.  As such they have no legal effect. 

Service Performance Reporting

Read our factsheet on Service Performance Reporting for Tier 1 and Tier 2 entities


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Refer to:

XRB A1 Accounting Standards Framework

XRB A2 Meaning of Specified Statutory Size Threshold

PBEs are reporting entities whose 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.

There is a presumption that a registered charity would meet the definition of a PBE and would report under the PBE accounting framework.

However, refer to Appendix A of XRB A1, which contains guidance and illustrative examples on “when is an entity a public benefit entity?”

For-profit entities are not defined. If a registered charity does not meet the definition of a PBE then it would report using the standards for for-profit entities.


They are PBEs that are public entities as defined in the Public Audit Act 2001 (for example, government departments and local authorities).


The Reduced Disclosure Regime provides disclosure concessions for Tier 2 public benefit entities (PBEs) applying the PBE Standards. Tier 2 PBEs are not required to comply with disclosure requirements denoted with an asterisk (*). However, they are required to comply with any RDR paragraphs associated with the concession.


In the period that the charity meets the size criteria that require it to apply the accounting standards for Tier 2, the charity is permitted to continue to apply the accounting standards for Tier 3 in that period and for one more reporting period. This is to allow the charity time to prepare to report under the higher tier. However, if the charity had decreased in size, such that it qualified to use the standards of a lower tier, it could do so immediately to reduce its costs of reporting.

Please note that if a charity meets the definition of public accountability at any time during a reporting period, it must apply the Tier 1 PBE Accounting Requirements for the reporting period in which it meets the definition.

XRB A1 contains information on moving between tiers.


You can only do this if an accounting standard requires or permits revenue and expenses to be offset.

(Refer to XRB A1 Tier Criteria)

Refer to PBE IPSAS 23 Revenue from Non-Exchange Transactions

PBE IPSAS 23 does not require the recognition of services in-kind (i.e. giving time freely). However, the Standard encourages disclosure in the notes to the financial statements of the nature and type of services in-kind received during the reporting period. This helps readers of the financial statements better understand the resource level required to operate the charity.

(Refer to paragraphs 98-103 and paragraph 108 of PBE IPSAS 23)


The general rule is that non-cash items donated to a charity, particularly non-cash items that become fixed assets of the charity, are to be recognised at their fair value at the date the charity receives the donated non-cash items.

(Refer to paragraph 97 of PBE IPSAS 23)


Paragraph 97 of PBE IPSAS 23 states that for many assets the fair value will be readily ascertainable by reference to quoted prices in an active and liquid market. For example, current market prices can usually be obtained for land, non-specialised buildings, motor vehicles and many types of plant and equipment.

PBE FRS 48 was issued in November 2017 and introduces requirements for Tier 1 and Tier 2 charities to present service performance information alongside their financial statements. You may refer to this information as a statement of service performance if you wish. 

PBE FRS 48 Service Performance Reporting became effective for annual periods beginning on or after 1 January 2021. 

More information


We have not developed templates for the Tier 1 and Tier 2 charities. However, some of the larger chartered accountancy firms have model financial statements available to download from their websites.

Two PBE Standards contain illustrative examples of financial statements. Appendix B of PBE IPSAS 1 Presentation of Financial Statements contains an illustrative example of financial statements of a not-for-profit entity and PBE IPSAS 2 Cash Flow Statements contains an illustrative example of a cash flow statement of a not-for-profit entity.

'Materiality' is defined in paragraph 7 of PBE IPSAS 1 Presentation of Financial Statements as follows:

“Omissions or misstatements of items are material if they could, individually or collectively, influence the decisions or assessments of users made on the basis of the financial statements. Materiality depends on the nature and size of the omission or misstatement judged in the surrounding circumstances. The nature or size of the item, or a combination of both, could be the determining factor.”

The XRB has developed guidance on applying materiality, and this can be found in explanatory guide EG A7 Materiality for Public Benefit Entities.

PBE IPSAS 29 Financial Instruments: Recognition and Measurement contains application guidance and an illustrative example on the accounting for low interest loans (referred to in PBE IPSAS 29 as concessionary loans). Essentially the requirement is for the accounting to reflect the economic substance of the transaction which will generally include the recognition of a donation element as well as an interest expense appropriately over the life of the loan.

(Refer to paragraphs AG84-AG90 of PBE IPSAS 29)

A helpful guide for Public Benefit Entities applying PBE IPSAS 41

PBE IPSAS 41 Financial Instruments is effective for accounting periods beginning on or after 1 January 2022. This PBE Standard establishes new requirements for the recognition, measurement, presentation, and disclosure of financial assets and financial liabilities.

Read more