Nelson Tasman Chamber of Commerce Building Blocks Workshop Financials for Not-for-Profit Organisations

Transcription

1 Nelson Tasman Chamber of Commerce Building Blocks Workshop Financials for Not-for-Profit Organisations Simon Danson Dec

2 Disclaimer This presentation is for general information only. Any advice in it has been prepared without taking into account your personal circumstances. You should seek professional advice before acting on any material. While all reasonable care is taken in the preparation of this presentation, to the extent allowed by legislation Crowe Horwath (NZ) Limited accepts no liability whatsoever for reliance on it. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice by Crowe Horwath (NZ) Limited. Crowe Horwath (NZ) Limited assumes no obligation to update this presentation after it has been issued. Risk insurance services are provided by Crowe Horwath NZ Financial Advice Limited, a wholly owned subsidiary of Crowe Horwath Australasia Ltd. 2

3 Our service offering Audit Audit and Assurance Corporate Governance Internal Audit and Risk Consulting IT Systems/Security Reviews Statutory Independent External Audits Tax Direct/Indirect Tax Tax Planning International Tax (In/Outbound) Transactional Tax Advice Tax Disputes Transfer Pricing Tax Certainty/Compliance Advisory Foundation Business and Finance Advisory Growth and Transition Advisory Business Coaching and Capability Development Corporate Finance Forensic Accounting Human Resource Consulting Risk Management The relationship you can count on 3

4 Crowe Horwath New Zealand 4

5 About Crowe Horwath International US$ 3,436M total revenue 8% growth 205 member firms, business associates and correspondent firms 125 countries 726 offices 3,544 partners 31,040 total partners and staff 9th largest international network of independent accounting and advisory services firms - International Accounting Bulletin (IAB) January

6 About Crowe Horwath International Top 10 Member of the 9th largest global network International Accounting Bulletin (IAB) January th 5th largest firm in Australia and New Zealand US$3,436M Total fee volume 125 Countries 726 Offices 31,040 Total partners and staff 205 member firms, business associates and correspondent firms 3,544 Partners 9 th largest international network of independent audit and advisory services firms International Accounting Bulletin (IAB) January

7 Objectives of this workshop Provide further detail on areas of interest for those in a Governance role in a Not For Profit entity. Provide practical tips as well as background information. Provide information on future changes to the sector. This will cover entities reporting under new PBE regime. Wealth Management 7

8 What We Will Cover Sector Overview Definitions Governance Requirements Financial Statements Format, Policies, Terminology Ratios, Trends and Analysis Cash Flow Statements Changes to Framework Wealth Management 8

9 Sector Overview Not For Profit (NFP) sector in NZ has estimated annual expenditure of over $12 billion. The NFP sector has over 250,000 paid full time employees. There are over 27,000 charities in NZ. Previous financial reporting requirements for NFPs was loosely specified with no direct legislation. Source : DIA data Wealth Management 9

10 Sector Overview Large number of NFP are publicly accountable because they accept donations directly from the donating public. NFPs often viewed as receiving preferential treatment (exempt from Income Tax) such benefits can create public accountability. Increased public scrutiny of the use of donations on administration costs and overseas projects. Wealth Management 10

11 Sector Overview Inconsistency of financial information submitted to the Charities Commission All these have led to an increase in the reporting obligations as we will see later. Wealth Management 11

12 Definitions NFP what does it actually mean? Does it mean the entity doesn t try to make a profit? Generally think of an Incorporated Society or a Charitable Trust as being an NFP. Terminology to consider now = Public Benefit Entity Wealth Management 12

13 PBE Public Benefit Entity (PBE) per External Reporting Board(XRB): an entity whose primary objective is to provide goods or services for community or social benefit and where equity has been provided to support that objective rather than for a financial return. Wealth Management 13

14 PBE Factors to Consider XRB A1 Founding Documents Nature of the Benefits Quantum of Expected Financial Surplus Nature of Equity Interest Nature of the Funding Wealth Management 14

15 PBE All registered charities are PBE. Only Incorporated Societies that are registered charities apply the new framework. (Expected that the Government will require all Incorporated Societies to comply with PBE standards in the future). Wealth Management 15

16 PBE New framework known as: Public Benefit Entity Financial Reporting Framework Wealth Management 16

17 Governance Requirements The process, structures and relationships used to direct and manage the organisation s operations and activities. Good governance models define the division of power between board and staff, help guide decisions on resources and establish mechanisms of accountability for all areas of the organisation. Wealth Management 17

18 Governance Requirements Good governance allows a board to monitor the organisation s: Mandate Reputation Legal & fiscal responsibilities Ethical obligations Risk management Wealth Management 18

19 Elements of Good Governance Independent input (fresh set of eyes) Objective input (no vested interest) Check and measure of the past Targets (set as a forward plan) Proper forum for robust discussions on current issues Done regularly Clear agendas in advance of the meetings Coming out of the meeting with accurate minutes and points to action Wealth Management 19

20 Considerations Get the structure right (independent members?) Number of members and their tenure Dealing with board conflict Agreeing the Board s role Accountability and individual roles How Board policies are developed, reviewed, and adopted. Review the Board s performance Wealth Management 20

21 Governance Models Advisory Board Patron Model Co-Operative Model Management Team Model Policy Board Model Nathan Garber Wealth Management 21

22 Advisory Board Often when CEO is founder Emphasises helping and supportive role of the Board to the CEO Individual Board members use their skills for benefit of organisation entity does not pay for them Helpful in establishing credibility of the organisation Wealth Management 22

23 Patron Model Similar to Advisory Board but has less influence over the organisation Usually wealthy and influential individuals seen as figureheads for fund raising purposes Meet infrequently main work done outside of meetings Most organisations use Patrol Board in addition to their governing boards Wealth Management 23

24 Co-operative Model All responsibility shared and no CEO Decision making normally by consensus no one individual has power over another Seen as most democratic management style but often most difficult model to maintain Hard to implement effective accountability structures Wealth Management 24

25 Management Team Model Board creates Committees responsible for management functions HR, finance, fund-raising etc Board has high degree of involvement in operational and administrative functions of the organisation Works well for volunteer organisations Wealth Management 25

26 Policy Board Model Board exist to establish guiding principles and policies for the organisation and delegate responsibility and authority to those tasked with enacting the principles and policies Characterised by high levels of trust and confidence by the Board in the CEO Few committees more meetings of full Board Wealth Management 26

27 Governance Requirements Board must determine which model best fits the needs of the organisation could be a combination. Needs to: Develop and maintain a long-term perspective Ensure sound performance Ensure financial health Ensure sound relationships Wealth Management 27

28 Governance Requirements Sum up as 3 areas of concentration: Strategic Operational Financial Wealth Management 28

29 Board Financial Focus - Minimum Internal controls (see later) Systems reliable information Fraud (see later) Planning forecasts / budgets Regular reporting What do the numbers mean? (see later) Independent review Wealth Management 29

30 Governance Requirements Internal Controls Typical Audit Report wording : Wealth Management 30

31 Trustees Responsibility for the Financial Statements The trustees are responsible for the preparation and fair presentation of these financial statements in accordance with generally accepted accounting practice in New Zealand; and for such internal control as the trustees determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Wealth Management 31

32 Internal Control Definition A process effected by an entity s board, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: Effectiveness and efficiency of operations Reliability of financial reporting Compliance with applicable laws and regulations Safeguarding of assets Wealth Management 32

33 Governance Requirements Practical everyday controls: Dual signatories Invoices authorised before paid Board authorisation for larger payments Access controls use of passwords / restricted access Restrictions on who can order goods. Etc, etc etc Wealth Management 33

34 Governance Requirements Controls must be: Robust Subject to periodic reviews Consider appropriateness of access by volunteers Still important even if outsource the accounts preparation function Wealth Management 34

35 Fraud Responsible for designing processes and procedures that make fraud difficult Tone at the top crucial Fraud policy / Employee handbook Governance need to protect entity assets as if they were their own Governance need to have systems/processes in place to monitor those charged with designing processes to mitigate fraud Wealth Management 35

36 Financial Statements Format / Terminology Accounting Policies Wealth Management 36

37 Format / Terminology Basis for preparation do you know? Statement of Financial Position v Balance Sheet Statement of Financial Performance v Profit & Loss Account v Income & Expenditure Account Profit / Loss v Surplus / Deficit Accruals based v cash based Transparency Wealth Management 37

38 Accounting Policies Determine how you measure assets, liabilities, revenue, expenses, equity Important part of the financial statements add further information as to how the numbers are derived They are YOUR policies set by Board but with reference to accounting standards Appropriate for the entity Wealth Management 38

39 Ratios, Trends & Analysis Ratios normally more useful for trading entities Gross margin Net profit margin Return on investment NFP = overhead expenses and incidental costs support delivery of NFP service effective budget setting Wealth Management 39

40 Grants Received Record keeping spent on activity awarded for? Fine-print return unspent portion Used for similar projects if unspent? Milestones are they known and monitored effectively? Are systems in place to record all this robust enough? Grants register. Wealth Management 40

41 Donations do you give out receipts (where practical)? Rental income up to date lease agreements? Bequests full documentation from solicitors? Robust audit trail even for revenue Wealth Management 41

42 Trading Activities Some NFPs engage in trading activities shop Used to support primary objective Do you measure the result of its activities? Can we improve the results? Important ratio here to consider is Gross Margin % Wealth Management 42

43 Gross Profit Margin Gross Profit Sales TOTAL OPERATING REVENUE 1,059,898 Sales 1,059,898 LESS COSTS OF GOODS SOLD 764,023 LESS TOTAL DIRECT EXPENSES 49,331 GROSS PROFIT 246,544 GROSS PROFIT % 23.3% Wealth Management 43

44 Gross Profit: Gross Profit $ vs Gross Profit Percentage Why the increase / decrease? Reduction/stagnant sales price Increase in cost of purchases Discounts Not invoicing all work done Theft Wages increase Audit Audit Tax Tax Advisory Advisory Wealth Management 44

45 How can you increase your Gross Profit: Increase prices Supplier discounts/prompt payment discounts Don t discount Charge for currently free services Track which of your products are making a profit and those that are not Streamline processes to reduce labour costs Audit Audit Tax Tax Advisory Advisory Wealth Management 45

46 Expenses / Overheads Make a budget and stick to it! Budgets should be realistic. Eliminate unnecessary support costs Measure results of expenditure marketing and advertising Use regular variance analysis Compare expense/revenue lines to budget Compare expense/revenue lines to last year Ascertain reasons for variance are they as exepected? Beware of incorrect coding to reduce variance It is what it is educate the staff. Wealth Management 46

47 Horizontal Analysis % Change in sales = (Current Year Sales - Last Years Sales) Last Years Sales Analysis TOTAL OPERATING REVENUE 1,059,898 1,002, % Total Sales 1,059,898 1,002,976 LESS COSTS OF GOODS SOLD 764, ,567 (4.3%) LESS TOTAL DIRECT EXPENSES 49,331 52,598 (6.2%) GROSS PROFIT 246, ,811 62% GROSS PROFIT % 23.30% 15.10% Wealth Management 47

48 Vertical Analysis TOTAL OPERATING REVENUE 1,059, Analysis Total Sales 1,059, % LESS COSTS OF GOODS SOLD 764, % LESS TOTAL DIRECT EXPENSES 49, % GROSS PROFIT 246, % Wealth Management 48

49 Trend Analysis Use trend analysis Shows changes in performance over time A way to analyse wider operational trends Need systems and processes of data capture to ensure this is useful Wealth Management 49

50 Trend Analysis The Trend Analysis 600, , , , , , , , , , , , ,000 80,000 40, Year Sales Gross surplus Wages Net business surplus Wealth Management 50

51 Balance Sheet Sometimes called Statement of Financial Position Expresses the financial position of an entity at a specific point in time Snapshot of the assets, liabilities and equity of the entity Wealth Management 51

52 Balance Sheet Current Assets (CA) Fixed Assets (FA) Current Liabilities (CL) Long Term Liabilities (LTL) Equity (E) CA + FA CL LTL = E CA CL = Working Capital Wealth Management 52

53 Balance Sheet Current Assets (recoverable in <12 months) Bank Receivables Inventory Fixed Assets (cost less accumulated depreciation) Land and buildings Plant and Equipment Office Equipment Wealth Management 53

54 Balance Sheet Current Liabilities (payable in <12 months) Bank overdraft Creditors (including GST and payroll items) Short term loans (< 12 months) Long Term Liabilities Long term loans (> 12 months) Wealth Management 54

55 Balance Sheet Equity Accumulation of profits / losses Reserves (revaluation) Wealth Management 55

56 Current Ratio / Working Capital Current Assets Current Liabilities CURRENT ASSETS Accounts Receivable 86,226 Goods & Services Tax 5,984 Westpac Savings Account 26,569 Stock on Hand 6,987 Provision for Tax 1,269 Westpac Cheque Account 28,618 TOTAL CURRENT ASSETS 155,653 CURRENT LIABILITIES Accounts Payable 111,956 Current Portion 13,968 TOTAL CURRENT LIABILITIES 125,924 NET CURRENT ASSETS 29,729 CURRENT RATIO 1.24:1 Wealth Management 56

57 Debtor Days Average Debtors Exclusive of GST (Sales/365) STATEMENT OF FINANCIAL PERFORMANCE Sales 1,059,898 STATEMENT OF FINANCIAL POSITION CURRENT ASSETS Accounts Receivable 86,226 61,487 Goods & Services Tax 5,984 9,540 Westpac Savings Account 26,569 19,658 Stock on Hand 6,987 20,569 Provision for Tax 1,269 1,155 Westpac Cheque Account 28,618 28,978 Debtor Days 22 Days Wealth Management 57

58 Stock Days Average Stock Cost of Goods Sold/365 Sales 1,059,898 LESS COST OF GOODS SOLD Opening Stock 20,569 Purchases 750, ,010 Closing Stock 6,987 TOTAL COSTS OF GOOD SOLD 764,023 STOCK DAYS 6.5 Days Wealth Management 58

59 Cash Flow Statement Profit is good but cash is king The two are not the same Opening Cash + Cash In - Cash Out = Closing Cash (equals your bank and cash balance) Wealth Management 59

60 Cash Flow Cash In Income/revenue/sales/fees Capital receipts (from sale of assets) Funds drawn down on loans Other CASH income Cash Out Expenses (including wages) Capital investments (purchase of fixed assets) Repayment of loans Wealth Management 60

61 Cash Flow You need to know where your cash is going Profit is not cash Profit adjusted by non-cash items Depreciation Movement in debtors and prepayments Movement in creditors and accruals Wealth Management 61

62 Changes To Framework All Registered Charities must complete annual reporting to Charity Services, including completion of Annual Return accompanied by annual financial statements. Up until now, there has been no minimum standards on the content or the quality of annual financial statements filed. From accounting periods commencing on or after 1 April 2015, annual financial statements must be prepared in accordance with PBE Accounting Standards issued by the XRB. Four different tiers of financial reporting requirements have been developed to allow smaller charities to prepare financial statements on a simplified basis. Tier 3 and 4 will be required to complete a Statement of Service Performance, reporting nonfinancial information. Wealth Management 62

63 Reporting Entities Caught Under Legislation Entities required to prepare financial statements in accordance with the PBE Financial Reporting Framework: PBE Public Sector Entities Registered Charities Industrial and Provident Societies Friendly Societies and Credit Unions Gaming Machine Societies NFP Retirement Villages NFP Maori Trust Boards NFP Maori Incorporations NFP Maori Land Trusts Wealth Management 63

64 Minimum Statutory Financial Reporting & Assurance Requirements Wealth Management 64

65 Minimum Statutory Financial Reporting & Assurance Requirements Wealth Management 65

66 Preparing Annual Financial Statements Under NZIPSAS TIER 1 AND TIER 2 Wealth Management 66

67 Tier 1 and 2 Key Differences From Current Accounting Practice 1. Revenue from non-exchange transactions 2. Inventories 3. Heritage Assets 4. Presentation of financial statements and note disclosure 5. Consolidated financial statements (if currently Special Purpose) 6. Increased guidance on accounting for financial instruments (if currently old GAAP) 7. Increased guidance on considering when assets are impaired (if currently old GAAP) Wealth Management 67

68 1. Key difference accounting for non-exchange revenue NZ IPSAS includes two standards dealing with revenue: PBE IPSAS 9 Revenue from Exchange Transactions PBE IPSAS 23 Revenue from Non-Exchange Transactions As a result PBEs are required to classify each revenue stream as an exchange transaction or a non-exchange transaction. The determination of whether a transaction is an exchange transaction or a nonexchange transaction will impact when revenue is recognised. Do I recognise revenue when receipt is probable or over time as agreed services are provided? Wealth Management 68

69 1. Key difference accounting for non-exchange revenue Exchange transactions are revenue transactions in which the consideration received is approximately equal value to the goods or services provided. Examples of exchange transactions are the sale of goods or services or the lease of equipment at market rates. Exchange transactions can be summarised as commercial activities driven by the forces of demand and supply. Non-exchange transactions arise where an entity receives value from another entity without giving approximately equal value in exchange e.g. taxes, grants. and donations. Wealth Management 69

70 1. Key difference accounting for non-exchange revenue Non-exchange transactions Donations, grants and bequests Assets acquired or sold for less than market value Loans received or provided with non-market terms Goods or services purchased or sold for less than market rates Wealth Management 70

71 1. Key difference accounting for non-exchange revenue Volunteer time PBE IPSAS 23-98: An entity may, but is not required to, recognise services inkind as revenue Accounting Policy Choice Many not-for-profits see real value in donated time provided by members and wish this value to be reflected in the annual financial statements. To recognise the fair value of volunteer time as non-exchange revenue, systems need to be put in place to demonstrate this time can be accurately measured. Wealth Management 71

72 1. Key difference accounting for non-exchange revenue Recognition of non-exchange income The main difference in the recognition of income between exchange and nonexchange: PBE IPSAS 9 (exchange): income is generally recognised when goods are delivered or over the period in which services are provided. PBE IPSAS 23 (non-exchange): income is generally recognised when goods are delivered or over the period in which services are provided, only when there is an explicit obligation to return income receipts when goods or services have not been delivered. If there is no requirement to return funds received in case of non-performance, then income is recognised upon receipt. Wealth Management 72

73 1. Key difference accounting for non-exchange revenue Recognition of non-exchange income Example: The Lotteries Commission provides a grant of $10 million to a charity, with no restrictions attached to the grant. The charity is required under its constitution to undertake various social benefit programmes. There are no performance obligations and therefore the grant is recognised as revenue on receipt. If the grant had been provided with the restriction that it be used to fund social benefit programmes, but with no requirement to return unused funds, then the entire grant would be recognised as revenue on receipt. If the grant had been provided with the condition (with a right of return) that it be used to fund social benefit programmes, then the grant would be recognised as revenue over the period in which social programmes are delivered. Wealth Management 73

74 2 Key difference accounting for inventories Many charities do not currently recognise inventories received for no consideration and expense the cost of inventories acquired for the purpose of distribution with no sale value. PBE IPSAS 12 Inventories, specifically includes within the definition of inventories stock items held for distribution or for the delivery of charitable services. These stock items are required to measured at fair value and bought onto the balance sheet; Inventories are recognised even when they are distributed for no charge or a nominal amount; Inventories acquired through non-exchange transaction (i.e. donated goods) are required to be measured at fair value and recognised as non-exchange revenue measured based on an estimated replacement cost; As inventories are consumed through the delivery of charitable services, they are expenses to the profit and loss. Wealth Management 74

75 3 Key difference accounting for heritage assets Assets held for their cultural, environmental or historical significance rather than for the purpose of generating future cash flows. Examples include historical buildings, monuments, archaeological sites, conservation areas, nature reserves, and works of art. PBEs will need to decide whether any heritage assets held meet the PP&E recognition criterion. If yes, the assets are required to be recognised on the balance sheet at fair value. Unrecognised heritage assets require note disclosure: nature of the unrecognised heritage asset where the information is available, the estimated fair value of the heritage assets. Wealth Management 75

76 4 Consolidated financial statements PBE IPSAS 6 Consolidated and Separate Financial Statements requires a reporting entity to present consolidated financial statements in which it consolidates all its controlled entities. A controlled entity is not excluded from consolidation because its activities are dissimilar to those of the other entities in the group e.g. a for-profit company. Whether an entity controls another entity for financial reporting purposes is a matter of judgement, based on the definition of control. Control is the (1) the power to govern the financial and operating policies of another entity (2) so as to benefit from its activities. Wealth Management 76

77 4 Consolidated financial statements Determining where a controlling relationship exists: Explanatory Guide A8 Financial Reporting by Not-For-Profit Entities: The Reporting Entity Explanatory Guide A9 Financial Reporting by Not-For-Profit Entities Identifying Relationships for Financial Reporting Purposes PBE IPSAS 6 (NFP) Consolidated and Separate Financial Statements Wealth Management 77

78 5 Presentation and note disclosure 1. Terminology differences 2. Statement of Comprehensive Income and Expenses 3. Statement of Cash Flows 4 Increased disclosure of key management personnel remuneration 5. Reduction in note disclosure under RDR. 6. Increased note disclosure if moving from special purpose or old NZ GAAP. 7. Differences in treatment of related part y disclosures Wealth Management 78

79 Preparing Simple Format Annual Financial Statements Tiers 3 and 4 Wealth Management 79

80 Introduction to PBE Simple Format Financial Statements Financial Reporting Framework for PBEs with less than $2 million expenditure. Financial reporting by NFP entities will comprise both financial and nonfinancial information. Simple Format Reporting Standards Single, standalone standard (compulsory) Template financial statements (voluntary) Template Financial Statements Guidance Notes (voluntary) Less technical language Simpler requirements For some, the simple format maybe too simple Wealth Management 80

81 Tier 3 and Tier 4 Simple Format Financial Statements Wealth Management 81

82 Tier 3 and Tier 4 Simple Format Financial Statements Non-financial Tier 3 Tier 4 Entity Information Service Performance Financial Financial Statements Resource and commitments Supporting Info Notes Wealth Management 82

83 Tier 3 and Tier 4 Simple Format Financial Statements Entity InformationI- Non-financial Who are we? Why do we exist? Gathering the required information Your constitution, rules, strategic plans or founding documents This section can be completed now ty Information Wealth Management 83

84 Tier 3 and Tier 4 Simple Format Financial Statements Entity Information Wealth Management 84

85 Tier 3 and Tier 4 Simple Format Financial Statements Statement Service Performance (SSP) Non-financial What did you do last year? (outputs) Why were those activities important to your charity or what were you trying to achieve? (outcomes) The reporting on non-financial information in the annual financial statements in the form of: Outcomes: what the entity is seeking to achieve in terms of its impact on society; and Outputs: the goods or services that the entity delivered during the year in relation to the delivery of desired outcomes. Wealth Management 85

86 Tier 3 and Tier 4 Simple Format Financial Statements Statement Service Performance (SSP) Non-financial Guidance Notes: The description of the outcomes should be specific and focused on what the entity is seeking to achieve over the short to medium-term. Requires only the outputs that are significant to the performance of the entity. It is not expected to include a detailed account of everything the entity does. Sometimes a pictorial representation of the entity s achievements during the financial year presents the story more clearly than words or numbers only. Wealth Management 86

87 Tier 3 and Tier 4 Simple Format Financial Statements Service Performance Outcomes section, optional for Tier 4 Wealth Management 87

88 Tier 3 and Tier 4 Simple Format Financial Statements Statement Service Performance (SSP) Gathering the required information Most Charities are already recording the delivery of non-financial objectives in some form or another Chairman Reports, Activity Reports provided to funders etc. Ideally the outputs and outcomes should be established and approved by the Governing Board at the commencement of each financial year. Measurable outputs should be selected and ideally outputs that can be counted. New systems and associated controls may be required to capture necessary information. Wealth Management 88

89 Tier 3 and Tier 4 Simple Format Financial Statements Financial Statements Gathering the required information Based on template financial statements determine categories of income and expenditure that is applicable to your charity. Ideally set up your accounting system mapping so that categories of income and expenditure as required by XRB can be reported automatically. Identify where new chart of account codes are required. Ensure separate account codes are established for member and non-member income. Wealth Management 89

90 Tier 3 and Tier 4 Simple Format Financial Statements Financial Statements Statement of Financial Performance/ Receipts and Payments Statement The standard (and template financials) outline categories of income and expenditure that must be disclosed (where applicable). Categories must be applied on a consistent basis, so that comparisons can be made between financial years. The standard requires information from members to be recorded separately to income from non-members the purpose being to demonstrate the extent to which the Charity is self-funded. Suggest separate disclosure of significant grants either on face of statement or in the notes to the financial statements. Wealth Management 90

91 Tier 3 and Tier 4 Simple Format Financial Statements Financial Statements Wealth Management 91

92 Implementation of New Financial Reporting Requirements Financial Reporting Act 2013 effective dates The FRA 2013 introduces statutory financial reporting requirements for Registered Charities for accounting periods commencing on or after 1 April 2015 Wealth Management 92

93 XRB First Time Adoption Requirements Tier 1 PBE FRS 46: First-time adoption - Previously applying NZ IFRS An entity shall apply the PBE Standards consistently from the transition date, being the opening equity position of the comparative year. From the transition date the entity shall apply PBE Standards that are effective at the end of the first reporting period under the PBE Standards. PBE FRS 47: First-time adoption other than those previously applying NZ IFRS An entity shall apply the PBE Standards consistently from the transition date, being the opening equity position of the comparative year. From the transition date the entity shall apply PBE Standards that are effective at the end of the first reporting period under the PBE Standards. Wealth Management 93

94 XRB First Time Adoption Requirements Tier 1 and Tier 2 (previously NZ IFRS) An entity shall prepare its first set of financial statements applying consistent accounting policies to all periods reported. Example A Registered Charity with a 31 March balance date, previously prepared financial statements in accordance with NZ IFRS and under the new Framework is required to report in accordance with NZ IPSAS with RDR. In the first year of IPSAS adoption the following requires conversion: 31 March 2014 (opening equity) transition date 31 March 2015 (B/S & P&L) comparative year 31 March 2016 (B/S & P&L) first year of adoption Wealth Management 94

95 XRB First Time Adoption Requirements Tier 2 PBE FRS 46: First-time adoption - Previously applying NZ IFRS An entity shall apply the PBE Standards consistently from the transition date, being the opening equity position of the comparative year. From the transition date the entity shall apply PBE Standards that are effective at the end of the first reporting period under the PBE Standards. PBE FRS 47: Exemption Wealth Management First-time adoption other than those previously applying NZ IFRS In the first-year of adoption Tier 2 entities are not required to present comparative information in their first set of financial statements under PBE Standards. Instead the entity should attach a copy of the previous year s financial statements and provide an explanation of the significant differences in accounting policies applied between the two sets of financial statements. Tier 2 entities are encouraged to present full comparative information on transition to PBE Standards, where it would not be onerous. 95

96 XRB First Time Adoption Requirements Tier 3 and 4 Tier 3 and 4 have two options in the first year of adoption in regards to treatment of comparatives: Adopt Tier 3 or Tier 4 reporting requirements from the start of the first year of adoption: In this case comparative information is not required. However, the entity shall attach its previous financial statements and a list of its previous accounting policies; or Apply Tier 3 or Tier 4 reporting requirements from the start of the previous period by restating the entity s previous financial statements. This means that the current year s figures and the prior year s comparative figures will be reported on the same basis. Wealth Management 96

97 Implementation of new accounting framework 1. Impact Assessment Plan Confirm choices available in relation to the preparation and audit of annual financial statements. Choose basis for preparing annual financial statements based on the nature and complexity of the organisation who will use the financial statements? Identify recognition and measurement differences in relation to assets, liabilities, and recognition of income and expenditure. Identify additional note disclosure requirements 2. Quantify impact to balance sheet accounts from transition date. 3. Implement new accounting systems and controls for new information 4. Adopt new accounting policies 5. Update template financial statements Wealth Management 97

98 Implementation of new accounting framework Start preparing for the presentation of the SSP now! Outcomes and measurable outputs require careful consideration. Ideally the budgeted outputs should be approved by the entity governing body before the commencement of the new year. Wealth Management 98

99 Currently Popular DIA Charitable Status Is it maintained? Have your activities changed? Dire consequences going concern Wealth Management 99

100 Our service offering Audit Audit and Assurance Corporate Governance Internal Audit and Risk Consulting IT Systems/Security Reviews Statutory Independent External Audits Tax Direct/Indirect Tax Tax Planning International Tax (In/Outbound) Transactional Tax Advice Tax Disputes Transfer Pricing Tax Certainty/Compliance Advisory Foundation Business and Finance Advisory Growth and Transition Advisory Business Coaching and Capability Development Corporate Finance Forensic Accounting Human Resource Consulting Risk Management Tel The relationship you can count on Disclaimer Crowe Horwath (NZ) Limited is a member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath is a separate and independent legal entity. Crowe Horwath Crowe Horwath (NZ) Limited and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath or any other member of Crowe Horwath and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath or any other Crowe Horwath member. Wealth Management 100