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17 Sep 2015
Last month I explained the financial reporting changes that were coming for businesses. In the most part businesses will not notice any change, and probably their accountant will deal with any of the reporting issues.
However the biggest difference is in the not for profit sector. These are being referred to as Public Benefit Entities (PBEs): entities whose primary objective is to provide goods and services for community or social benefit and from which there is no financial return to the investors.
Most sports clubs and incorporated societies do not operate with a view to a profit, but instead exist for the benefit of the participants, local community and members.
In the past there has been just one set of accounting standards which were relevent for everyone regardless of the type of entities. Now, with effect for accounting periods beginning on or after 1 April 2015, there is a separate set of accounting standards especially for Not for Profit entities.
One of the key changes is that there is now a specific rule stating how a PBE should account for donations received. In the past I have seen organisations carry forward donations to match against the project they were fundraising for. However under the new rules donations received would only be able to be carried forward if there was an obligation for the entity to repay the donor should the project not happen.
All PBEs with expenditure of $2million or less will have to produce a statement of service performance. This needs to explain the organisation's key objectives and how it has achieved against these objectives. These are effectively key performance indicators for the not for profit sector.
This makes a lot of sense for Not For Profits Entities. These entities do not exist to make money, but to provide a service to its members or local community. Therefore the financial statements should include information relating to what the entity has achieved during the year, and its purpose as well as the financial information.
Small PBE's are defined as not for profit entities with expenditure not exceeding $125,000 per annum. These entities do not have to produce full accounts and can instead prepare a Statement of Receipts & Payments. In simplistic terms this could just be a summary of the bank statement.
Committees and Trustees have been concerned in the past as to whether a Statement of Receipts & Payments would be sufficient for funders, such as ASB community Trust and the Gaming Foundations. I have confirmed with ASB Community Trust that due to the new reporting requirements they will accept a statement of Receipts & Payments for small PBE's.
All PBE's with expenditure greater than $125,000 will have to produce accounts which include a statement of financial performance and a balance sheet, now called the statement of financial position. This is similar to the accounts they have already been producing.
However there is now a standard template which they can follow and this can be downloaded from the Government's External Reporting Board's website www.xrb.govt.nz.
Anyone with a reasonable knowledge of excel spreadsheets should be able to use these templates and input your financial information into the spreadsheet.
There is also a standard template for Small PBE's who wish to produce Receipts and Payments accounts.
These standard templates include the Statement of Service Performance which all PBEs with expenditure of $2million or less now have to prepare.
As always care needs to be taken with new rules and regulations. PBEs should check their Constitution to ensure that this allows them to produce Receipts & Payments accounts.
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