- Financial reporting for Charities in New Zealand is finally being given the attention it deserves.
- The change in legislation requires charities to comply with reporting standards for the first time.
- In an election year, these statistics should be viewed in the right context, and charities given time to get used to the new requirements.
It’s been more than a year since new reporting standards became mandatory for registered charities in New Zealand. So most registered charities should have prepared their first set of financial statements (or more correctly; performance report) using the new standards. Meeting the new requirements in this first year would have been tough for some, so well done if you have given it a go!
The Charities Services arm of the Department of Internal Affairs (DIA) has publically reported that so far 59% of registered charities have complied with the new requirements. This has attracted some media attention, with varying views expressed.
We are fortunate that we have a pragmatic regulator that has taken an educative approach to encouraging compliance with the new reporting requirements.
New Zealand Labour MP Poto Williams is quoted as saying “The number seems to suggest that there's a whole lot of misappropriation going on”. Such an assertion is unfounded, but then again it is an election year.
Charity law specialist Sue Barker goes as far to say the non-compliance is “alarming”. I disagree, I actually find this level of compliance encouraging.
It’s all about the numbers
To explain why I am pleased, let me add some context. This change in legislation requiring registered charities to comply with new reporting standards is the most significant change in financial reporting ever for New Zealand charities. Furthermore this is the first year of mandatory adoption and we are all still learning. Additionally, most registered charities are fairly small, with minimal resources available to implement changes to ‘business as usual’.
The DIA compliance statistic itself is based on a risk-based sample of about 1,000 of the 28,000 charities on the register. Being risk-based means it is not representative of the entire population so the results cannot be extrapolated. As a result - the actual compliance rate is likely to be higher. Any change can be confronting, and of course, as with most things, there is always room for improvement.
We are fortunate that we have a pragmatic regulator that has taken an educative approach to encouraging compliance with the new reporting requirements. There has also been considerable awareness raising efforts, both in the lead up to implementation and throughout the transition. Chartered Accountants Australia and New Zealand have been and will continue to work closely with DIA and the External Reporting Board (XRB) in this regard.
The significant range in the size of registered charities in New Zealand led to the development of four different levels of reporting standards. This tiered approach provides charities of differing sizes with accounting standards appropriate to their size and complexity. The largest 5% of charities must use a suite of international-based accounting standards. The remaining 95% can use standards that have been developed domestically and designed specifically for the New Zealand charity sector. These are written in plain English and include a cash-based option for very small charities.
Not for profit reporting
Learn more about financial reporting requirements that may apply when you work with charities.READ NOW.
The bigger picture
One year on is a good time to pause and reflect on the benefits to us as a community of the new reporting requirements. Most notably they help improve the quality of public reporting – making it more comparable and transparent. But the benefits do not start and end there.
The new reporting standards are also a mechanism for charities to improve their governance and accountability. They provide a framework for charities to consider what they are trying to achieve and how they have met their objectives. Charities can use their resulting performance report to highlight their achievements and often amazing work to potential donors, volunteers and others.
Trust and confidence
Every two years since 2008 surveys to measure the levels of public trust and confidence in the charitable sector have been conducted. The 2016 results conducted for DIA’s Charities Services shows that overall New Zealanders’ trust and confidence in charities remains moderate, with an average rating of 5.9 out of 10. A range of factors contribute to building overall trust and confidence in the charitable sector, but a key driver is transparency around the use of charitable funds.
Building trust and confidence in the charitable sector improves the quality of life for all New Zealanders. Charities with good governance are more likely to attract support of all types – therefore reducing funding demands on the Government. This frees up resources for everyone, not just the recipients of a charity. I am confident that, in time, the new reporting standards will have a direct positive impact on public trust and confidence in charities.
Zowie Pateman is Acting Reporting Leader for Chartered Accountants Australia and New Zealand. Zowie oversees policy and advocacy work in the area of reporting.