I suspect this may sound the death knell for some clan societies. The main implications for CKNZ Inc are the requirement of dispute resolution procedures and the membership register and financial reporting implications. In anticipation of the reporting requiremenst we have already adopted the required GAAP for tier four incorporated societies from the 2012/13 financial year. Financial reporting The Incorporated Societies Act 1908 allows for very simple financial records to be prepared. These then need to be approved by the societys members and filed on the public record with the Registrar. The law does not specify that GAAP be followed. There is no specification for an audit to be performed. However, in practice, most Incorporated Societies have voluntarily chosen to follow GAAP with many have rules requiring an audit. 2011 saw a major change in financial reporting standard setting in NZ with the establishment of the External Reporting Board (XRB). The Minister of Commerce confirmed changes to the reporting requirements for charities and many other not-for-profit (NFP) entities, including that XRB will set financial reporting standards for NFPs required to prepare general purpose financial reports for filing with the Registrar. The intention is to make life easier for this sector by setting a consistent basis for financial reporting and providing certainty as to what is expected. General purpose financial reports will be required to be prepared under the standards determined by XRB. However, it is intended that International Public Sector Accounting Standards (IPSAS) will be used in future for the not-for-profit sector rather than International Financial Reporting Standards as the base accounting standards. This is sensible given they are better suited to the special features of not-for-profit sector entities. The Law Commission has recently reviewed the governing legislation for the 23,000 incorporated societies in NZ. The Commission’s report, ’A New Act for Incorporated Societies’, was tabled in Parliament on 21 August 2013. The Report recommends the Incorporated Societies Act 1908 be repealed and replaced by a modern statute. In addition to requiring all incorporated societies to prepare and file annual financial reports, the Commission recommends that this new statute sets out certain minimum governance requirements for societies. For example, each society would be required to have a governing committee of at least three members, as well as a statutory officer. The mandatory duties of these and other “officers”, as well as rules about how to manage conflicts of interest, would also be set out in the statute. The new statute would also list in more detail what each society’s constitution must cover, with a model constitution being available for adoption. It would also reduce the minimum number of members required before a society can incorporate from 15 members to 10 members. Significant issues in the report that CKNZ needs to monitor are: • The need for all constitutions to include a dispute resolution process. At the moment the Council has sole discretion on behalf of the members meeting. • The need to maintain (and annually report on) a register of members (which must not fall below ten). The review made no recommendations regarding mandatory financial audit. Each society will continue to determine its own audit requirements within its constitution. The Government has indicated it will respond to the report by February 2014 and legislation may emerge before the General Election. Changes are not likely to take effect before 2015. The main implication for CKNZ is in relation to financial reporting and is discussed below. The financial reporting requirements for Incorporated Societies under current New Zealand law is only loosely specified, which is no surprise given the Incorporated Societies Act was enacted in 1908. Under current legislation, incorporated societies have no obligation to prepare annual financial statements in accordance with generally accepted accounting practice (GAAP). From 1 April 2015, incorporated societies will be required by the Registrar to prepare financial statements in accordance with NZ GAAP. There is a proposal for a Performance Report, with both financial and non-financial information. The Law Commission’s financial reporting recommendations were that all societies prepare annual financial statements, and file copies with the Registrar. Societies with expenditure over $125,000 will prepare general purpose financial statements in accordance with New Zealand modified International Public Sector Accounting Standards (NZ IPSAS). Societies with expenditure under $125,000, such as CKNZ, will need to prepare financial statements in accordance with cash based accounting standards developed for not-for-profit entities by the External Reporting Board (XRB). Anticipating this obligation the financial statements for the year ended 30 June 2013 have been prepared under the Simple Format Reporting Standard for Not-for-Profits in Tier Four. The XRB has prepared a standard format template for reporting by organisations with under $2 million expenditure (tiers 3 & 4). As well as providing consistent financial reporting, it includes reports to “tell performance stories”—trying to answer the questions: • Who are we? • What did it cost? • Why do we exist? • How was it funded? • What did we do? • What do we need to continue? • When did we do it?
Posted on: Sun, 02 Feb 2014 23:50:31 +0000