Roadshow TREASURERS MEETING JUNE 2012

Transcription

1 Roadshow TREASURERS MEETING JUNE 2012

2 Agenda Financial Reporting Standards for the not for profit sector Discussion document on auditing and review engagements for large registered not for profits Xero accounting for parishes Change in officer definition Charities Act HR Changes from 1 April 2012 Volunteer Agreements

3 External Reporting Board (XRB) An Independent Crown Entity Statutory Functions Financial Reporting Strategy Accounting Standards Auditing & Assurance Standards Liaising with international counterparts

4 Terminology Public Benefit Entity (PBE) An entity whose primary objective is to provide goods and services for community or social benefit and where equity has been provided to support that objective rather than for a financial return For-Profit Entity Any entity that is not a PBE

5 New Statutory Framework Prepare GPFR if Publicly accountable Large FP: $30m revenue/$60m assets PBE: $30m expense 10 shareholders/members

6 New Statutory Framework PBE Entities Public Sector Entities Registered Charities Friendly Societies Industrial & Provident Societies (unless <10 members) Credit Unions Gaming Societies NFP Retirement Villages NFP Maori Trust Boards, Maori Incorporations, Maori Land Trusts All other NFP Entities (including Charitable Trusts, Incorporated Societies, Unincorporated Societies) GPFR Required? Yes Yes* Yes; can opt-out (if not large)* Yes Yes Yes Yes* No

7 Multi Standards Approach Accounting Standards Framework will consist of two sets of standards Set for For-Profit Entities Set for Public Benefit Entities Based on IFS Based on IPSAS

8 PBE Framework Tier Entities Standards 1 Publicly Accountable Expenses >$30m Full PBE Standards 2 Expenses <$30m PBE Standards RDR 3 Expenses <$2m Simple Format Standard (accrual) 4 Where Law Allows (Op Payments <$40k) Simple Format Standard (cash)

9 PBE Framework Public Sector: Majority in Tier 1 and 2 Some in Tiers 3 & 4 (schools, cemeteries) Charities: 96% in Tiers 3 & 4 58% in Tier 4 Simple Format Reporting Standard VERY Important

10 PBE Framework Tiers 3 & 4 Simple Format Reporting Standards Standalone User-friendly Recognition and measurement Minimum disclosures Templates Fill-in-the-box

11 Simple Format Reporting (SFR) Two SFR Sets Accrual (Tier 3) Cash (Tier 4) Each SFR Set SFR Standard (compulsory) Template (voluntary) Template Guidance Notes (voluntary)

12 Simple Format Reporting (SFR) SFR Standard (accrual) Section 1: Intro & Objective Section 2: Reporting Objective & Requirements Sections 3 10: Requirements for each Statement Section 11: Other Matters (areas not covered) Appendix: Conceptual Framework

13 SFR Standard - Objective Reporting Objective who we are why we bother what we did what it cost how it was paid for our future viability

14 SFR Standard - Statements Performance Report Statement of Organisational Overview Statement of Service Performance Statement of Financial Performance Statement of Financial Position Statement of Cash Flows Statement of Commitments and Contingencies Statement of Accounting Policies Notes

15 SFR Standard Coverage For Each Statement Purpose and value to users Minimum content Optional information Format When to record the transaction (recognition) How to measure (measurement) Examples

16 SFR Standard - Content

17 SFR Standard Format See my personal take on what the SFR may look like Only my view given what I know now!!!!!!

18 Financial Reporting Why the Fuss? Report prepared by Victoria University in March Research on small (expenditure of less than $40,000 pa) and medium (expenditure between $40,000 and $2,000,000 pa) charities. 49% of the charities returns had omissions and errors. Types of errors Missing equity figures 43 Misclassification/no separation 25 Missing figures 28 Incorrect figures/figures do not match 72 Charities noted that they were filing cash based accounts but they filed accrual based accounts instead - 77 Found that less than 5% of charities produced reporting that could be classified as good or very good despite more than half of the financial statements having independent assurance (an audit or review).

19 Standards Timing Standards Issued Public Sector: May 2013 NFP (SFR): July 2013 NFP (Tier 1 & 2): early 2014 Effective: Public Sector: years beginning 1/7/14 NFP: years beginning 1/4/15

20 Discussion Document Audit or Review? Ministry of Economic Development have issued a discussion document. Submissions close 20 July Assurance Engagements refer to either an audit or review of the financial accounts. 35% of registered charities spend less than $10,000 per year. It is difficult for many charities to find an honorary auditor.

21 Proposal for Assurance Assignments Registered charities with annual operating expenditure of $200,000 or more would be required to have an audit or a review engagement completed. Registered charities with annual operating expenditure of $300,000 or more would be required to have an audit engagement completed. Assurance Engagements would need to be carried out by a licensed auditor, registered auditing firm, chartered accountant or an overseas-qualified accountant recognised by the Register of Companies.

22 Assurance Options There are two internationally-recognised types of assurance engagement: Audit (also called reasonable assurance and positive assurance ) Auditing standards require the auditor to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. It is obtained when the auditor has obtained sufficient appropriate audit evidence to reduce audit risk to an acceptably low level. Thus, an audit is a high level of assurance;

23 Assurance Options Review (also called limited assurance and negative assurance ) A reviewer provides a report about whether anything has come to his or her attention to cause him or her to believe that the financial information does not comply with GAAP. A review report helps lend some credibility to the financial information by providing a moderate level of assurance that the financial information is not materially misstated. A review is based on enquiries and analytical procedures and the exercise of judgment. Therefore, there is an unavoidable risk that some material misstatements may remain undiscovered

24 In the UK Third Option The UK Charity Commission and the Office of the Scottish Charity Regulator provide for an alternative to audit for smaller registered charities called independent examination. Independent examination as a form of negative assurance and a less onerous form of scrutiny than an audit [which] provides less assurance in terms of the depth of work which is to be carried out. Examiners are not required to identify fraud or test the internal financial controls operating in the charity. More than 90% of the 183,000 charities registered in England, Wales and Scotland are eligible for independent examination.

25 In the UK Third Option Examiners of English and Welsh charities are only required to confirm that no evidence has been found that certain things have not been done by the charity, notably: Whether accounting records have not been kept; Whether the financial statements do not accord with the records; Whether the financial statements do not comply with various specific requirements appearing in the Companies Act 1985 (if the charity is a company) or the Charities Act 1993 (if the charity is a trust); Whether the financial statements do not comply with the obligation to give a true and fair view or, alternatively, the Statement of Recommended Practice for Accounting and Reporting by Charities issued by the Charity Commission in 2005; Whether or not any matter has come to the attention of the examiner s attention which in his opinion should be drawn attention to in the annual report in order to obtain a proper understanding of the financial statements; Whether there has been any material expenditure or action which appears not to be in accordance with the trusts of the charity.

26 Tentative Views No assurance requirement for any registered charity whose annual operating expenditure is less than $150,000. We like the UK model for registered charities with annual operating expenditure between $150,001 and $250,000; We agree with a review engagement for registered charities whose operating expenditure if between $250,001 and $500,000; We agree that an audit engagement for registered charities whose operating income is greater than $500,001. This is always subject to the requirements contained within charities constitution which may provide for a higher standard.

27 Tentative Views We are greatly concerned about costs to registered charities and are going to suggest that ongoing research is done on the costs of audit and review going back five years and for the first five years of implementation. We are concerned about whether accountants will be able to cope with the extra work and whether they will be able to deliver within the timeframes. Before introducing these new requirements more education is required.

28 Church Requirements - Current The church as an Audit Policy and this has been in place for a number of years. The Policy has been sent to all parishes with the annual statistic forms. Small Parishes with less than $100,000 of annual income shall be required to report on a receipts and payments basis with no audit requirement; Medium sized Parishes with annual income from $100,000 to $2,500,000 shall be required to report on an accrual basis with the accounts only subject to independent review by a member of the NZ Institute of Chartered Accountants where practical or by two competent people independent to the entity; Large Parishes with annual income greater than $2,500,000 shall be required to report in accordance with Generally Accepted Accounting Practice (GAAP), which includes compliance with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS), with full audit. Synods are subject to the same requirements as Parishes.

29 Parish Accounting for the Future The Board of Administration have been kept informed of the XRB and Med developments. We need to start planning NOW so we are ready for implementation by 1 July The Methodist Church Audit Committee and Board of Administration asked the Connexional Office to provide advise for the future. Connexional staff looked at four internet based and PC based accounting systems.

30 Parish Accounting for the Future The Connexional Audit Committee interviewed the four organisations and selected Xero (pronounced Zero) to do a trial for three months. With the 3 month trial period completed we believe that it is the best solution for parishes moving forward as it has a number of advantages.

31 Parish Accounting Xero Advantages An on line accounting system. The Parish Treasurer can securely log in to the software from any computer, this can be from the Parish Office, their home or their work office. Connexional Office Accountants can also log in and provide on the spot accounting support and advice. We will use standardised report formats across all parishes e.g. Statistics and Charities Commission Annual Returns, Annual Accounts in a standard format.

32 Parish Accounting Xero Advantages Automatic bank fees the bank transactions are automatically downloaded each morning into the accounting system directly from the bank. Transaction recognition - you can set up coding rules for regular income or expenditure e.g. direct debits, automatic payments, direct credit offerings, etc. Xero s tracking can be used for financial reporting e.g. one Statement of Financial Performance for the whole Parish, with details split out for separate Churches and Property Committees if required.

33 Parish Accounting Xero Advantages If a Parish Treasurer goes away on holiday, becomes unwell or resigns, then the Connexional Office can quickly come in and help for a short period of time or take over the whole accounting function. Produces your monthly GST Returns which looks like the GST101 Form with detailed breakdown on a transaction by transaction basis. Xero does not look like a traditional accounting package it is specifically designed for small business owners and people who are not accountants. There is very detailed HELP!!! And it is simple to follow.

34 Parish Finances Xero Advantages Accounts payable invoices can be paid either by cheque or direct credit (for Methodist Church BNZ customers, there is no cost to have electronic banking with two authorisers) Two levels for Parish Accounting full accrual system including accounts payable and accounts receivable cash accounting We would recommend accrual accounting mainly due to the need to do this when the accounting standards become a legal requirement but you can start with cash accounting and move up later.

35 Xero Demonstration

36 Parish Accounting When setting Xero up, the Connexional Office will use a standard template Chart of Accounts and look at tailoring this to the parishes needs but keeping in mind the need to be able to keep consistency. We will work with the Parish to ensure that at the time of implementing Xero, that we have the best available

37 Parish Accounting The Connexional Office can provide Full accounting service, this can be used if the Parish does not have someone who is willing to undertake the use of the online accounting system. The Connexional Office will provide full management of the bank account, including managing all aspects of the accounts payable function and managing accounts receivable if required. Monthly reports including a commentary regarding the accounts are sent to the Parish for presentation to the Finance Committee.

38 Parish Accounting The Connexional Office can provide Access to Xero - this can be used if the Parish has someone who is willing to undertake the use of the online accounting system. The Parish treasurer or administrator would reconcile the transactions using the online software with monthly reports being printed direct from accounting system. All payments and receipts are entered online. Unlimited accounting support will be provided through our Office. If this option is selected, the Parish will have full management and access to all accounting functions

39 Parish Accounting In terms of costs for Parishes and other Methodist entities, the costs of Xero up until 30 June 2013 will be as follows: Parishes / Entities will NOT be charged the first three months of the Xero monthly discounted charge of $40.00 per month (exclusive of GST). After three months, Parishes will be charged the actual cost of Xero per month - $40 plus GST, if any. The Board of Administration will make a direct debit from the Parish bank account on the 18 th day each month. Parishes / Entities will NOT be charged the onetime setup cost of $50 to activate the Parish and set up the chart of accounts using our own template chart of accounts. To enter the opening balance sheet, comparatives, profit and loss accounts, ready to start a Parish in Xero, the first four hours of the Connexional Office time will be FREE but any additional time required to validate balance sheet items will be charged at a flat rate of $70 per hour.

40 Charities Commission The definition of the officer now reads: officer (a) means, in relation to the trustees of a trust, any of those trustees; and (b) means, in relation to any other entity, (i) a member of the board or governing body of the entity if it has a board or governing body; and (ii) a person occupying a position in the entity that allows the person to exercise significant influence over the management or administration of the entity (for example, a treasurer or a chief executive); and (c) includes any class or classes of persons that are declared by regulations to be officers for the purposes of this Act; but (d) excludes any class or classes of persons that are declared by regulations not to be officers for the purposes of this Act As the information from the Charities Commission highlights, there is no change for trusts and the trustees for trustees, the definition of officer has not changed.

41 Charities Commission Change in Officers When there is a change in Officer (Steward, Treasurer or Secretary), then a change of Office needs to returned, not only to the Connexional Office but also the Charities Commission. These changes can be done online or a paper based form can be returned to the Charities Commission. Check out your own information for correctness by looking at the Charities Commission website. Charities Commission website is Change in Officer Form is Form 2 (Officer Certification Form) Changes to a Charitable Entity Form Form 3

42 Charities Commission Annual Return The Charities Commission require each registered charity to complete an Annual Return. A Charitable entity has six months to complete the form and send it to the Charities Commission. Due to the Commission before 31 December each year. Can be a paper based return or it can be done online. Online version takes about 20 minutes to complete. If you complete the annual statistics forms (M2 and M4), you will be able to complete your return online as the M2 and M4 forms have been designed with this in mind.

43 Charities Commission Annual Returns In the past the Connexional Office have filed the Annual Returns based upon the M2, M4 and financial information returned to the Connexional Office. Each entity/parish/synod will need to file their own Annual Return with the Charities Commission. Each entity/parish/synod will need their user name and password which this office has and can be given out, when requested. The current cost of filing an online annual return is $51.00 including GST. A paper based return costs $86.25.

44 Employer Superannuation Contribution Tax (ESCT) Tax changes to deal with this year are especially in relation to ESCT (employer superannuation contribution tax) and stu dent loans. The 2% exemption from ESCT is ceasing with all employer contributions liable for ESCT. ESCT will also be calculated differ ently. Unless you pay contributions into a defined benefit fund the 33% flat rate option will no longer be available. Instead, calculate ESCT at the employee's marginal ESCT rate. (ESCT is deducted from employer contributions and not as an additional pay ment).

45 Payroll Changes Minimum Adult Wage On the 1 April an in crease in the minimum wage changed from $13.00 per hour to $ So, it does not matter whether you are on a salary or a wage the minimum adult wage is $13.50 for any person 16 years of age or older. Other Stuff Other amendments over the past year enabled employees to ask to cash up annual leave, transfer public holidays and take alter native holidays. As well an employee can be required to provide proof of sickness within three days' absence if the employer pays the cost of obtaining the medical certificate. Most employers appear to be finding these changes workable.

46 Volunteer Agreements See the handouts

47 MCNZ Insurance Fund RENEWAL TO 31/12/12 Full cover has been placed through Lloyds including Earthquake and Natural Disasters Excesses are: - Ordinary perils $1,000 - Earthquakes $5Million (this is disaster cover) - Premiums will increase by 1.5 times last years rate - Premiums payable monthly

48 MCNZ Insurance Fund CLAIMS Total Earthquake claim likely $35 million plus Minor and moderate (paint and paper) largely completed. Awaiting determination of total loss or repair for Aldersgate, Morley House and Opawa Church Major repairs requiring building consents for Ashburton, St John s Bryndwr, Christchurch North, Lyttleton and St Luke s Halswell Insurers still considered solvent and successful claim expected

49 MCNZ Insurance Fund Payments The cash payments received for destroyed property will be held in the Church Building & Loan Fund waiting the Synod Strategy team decision. Parishes can apply to the Synod to receive 80% of the interest earned on the deposit.

50 Methodist Church Online Treasurers Forum Methodist Church Website