FAQs Tier 3 & 4
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 3 and Tier 4 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.
Assessing and reporting on your entity’s ability to continue operating
This series of FAQs will help the governing bodies of Tier 3 not-for-profit entities understand their responsibilities to assess and report on their entity’s ability to continue operating.
In periods of increased uncertainty (such as that caused by COVID-19), providing this information is an important part of helping readers to understand your performance report.
Under cash accounting, transactions and other events are recorded in the Performance Report only when cash is received or cash is paid. When cash accounting is used the Statement of Receipts and Payments is the main financial statement in the Performance Report.
Under accrual accounting, revenue and expenses are recorded when they are earned or incurred, rather than when the cash is received or paid. There are adjustments for the timing of revenue and expenses called accruals. These include debtors or accounts receivable (which is money owed to the charity), and creditors or accounts payable (which is money owed by the charity). Also under accrual accounting, depreciation of fixed assets is recorded to recognise the use of those assets. When accrual accounting is used the Performance Report includes three key financial statements: the Statement of Financial Performance (showing revenues and expenses), the Statement of Financial Position (showing assets and liabilities) and the Statement of Cash Flows (showing cash receipts and cash payments).
No. You may elect to report using the Tier 3 Standard if you wish. Please note that you will need to follow all of the requirements in that Standard if you elect to use it, including preparation of a Statement of Cash Flows.
No. You must elect the tier in which you will report, and follow all of the requirements for the standard for that tier. However, you are allowed to include relevant information that is additional to the requirements of the standard.
If you are reporting in accordance with the Tier 3 Standard and you have transactions that are not covered by that Standard, you may use the requirements of a Tier 2 Standard for that class of transactions.
No, depreciation is not a cash transaction. Therefore, it cannot be included in the Statement of Receipts and Payments.
Yes. However, the information provided in the Statement of Cash Flows in Tier 3 is similar to that provided in the Statement of Receipts and Payments in Tier 4.
No. The Tier 4 Standard requires a Statement of Resources and Commitments. If your charity properly accounts on a cash basis, you cannot prepare a full balance sheet that works in conjunction with the Statement of Receipts and Payments. However, you are allowed to include relevant information that is additional to the requirements of the standard.
Generally only Incorporated Societies that are also charities registered under the Charities Act 2005 are required to apply the XRB Standards.
This is because currently there are legal requirements for all registered charities to apply XRB Standards, regardless of the form of those charities, but no such legal requirements for Incorporated Societies which are not registered charities. However, the government is expected to require Incorporated Societies to comply with XRB Standards at some point in the future.
This will depend on whether your charity is registered for GST. If your charity is GST-registered, you will prepare the charity’s financial statements on a GST-exclusive basis. If your charity is not GST-registered, you will prepare the charity’s financial statements on a GST-inclusive basis.
If part of your charity is registered for GST and the other parts are not registered for GST, you will prepare the charity’s financial statements on a mixed basis (partly GST-exclusive and partly GST-inclusive). Such a situation may occur in circumstances where the IRD permits a single registered charity that comprises a head office and branches to have the head office registered for GST and the branches not registered for GST. Transactions occurring in the GST-registered part of the charity will be recorded on a GST-exclusive basis and transactions occurring in the parts of the charity that are not GST-registered will be recorded on a GST-inclusive basis.
If your charity is not registered for GST, then GST is part of the operating expenditure/payments, so the threshold is GST-inclusive.
If your charity is registered for GST, you collect GST as an agent for Inland Revenue, and it is not part of your charity’s operating expenditure/payments. The threshold is then GST-exclusive.
If part of your charity is registered for GST and the other parts are not registered for GST, the threshold will comprise both GST-exclusive and GST-inclusive amounts. (See previous question).
Non-cash donations can include items that have a long term benefit to the charity, such as a vehicle or a computer. These types of items are referred to as donated assets. Non-cash donations can also include items that have a short term benefit to the charity, such as food donated to a food bank or clothes donated to a charity shop. These types of items are referred to as goods received in kind.
A significant donated asset is accounted for as revenue in the Statement of Financial Performance and as an asset in the Statement of Financial Position, unless the value of the donated asset is not readily obtainable. If the value is not readily obtainable a description of the donated asset is disclosed in the notes.
If there is a significant level of goods received in kind, at a minimum, a description of the goods received needs to be disclosed in the notes. This is likely to be the case for food banks and charity shops that rely on a significant level of donated items. Although it is not required by the Tier 3 Standard, goods received in kind can be accounted for in the same way as donated assets, if the value of the goods received is readily obtainable.
Non-cash donations can include items that have a long term benefit to the charity, such as a vehicle or a computer, and items that have a short term benefit to the charity, such as food donated to a food bank or clothes donated to a charity shop.
All significant non-cash donated items that the charity has at year end should be disclosed as a resource in the Statement of Resources and Commitments. In the case of a food bank’s donated food or a charity shop’s donated clothes, although each item separately may be insignificant, collectively the items at year end are likely to be significant, and there should be disclosure about the group of items.
If the value of any non-cash donations is readily obtainable, it is helpful for the value to be disclosed. However, disclosing a value isn’t required by the Tier 4 Standard.