New Financial Reporting Standards
As discussed in a previous article, the legal regime governing incorporated societies in New Zealand has undergone a major overhaul. There have been substantial changes to the financial reporting requirements which all incorporated societies will have to ensure they are compliant with once they re-register with the Companies Office under the new rules from October 2023.
Incorporated societies are already required to prepare annual financial statements. But once they re-register with the Companies Office under the new rules, larger societies will have to use External Reporting Board accounting standards when preparing their financial statements, while small societies will have to comply with minimum requirements set out in the Incorporated Societies Act 2022 (‘the Act’) or adopt one of the XRB standards.
To qualify as a ‘small society’, your society must:
- Have total operating payments less than $50,000 in each of the previous two financial years; and
- Have current assets of less than $50,000 at the end of the previous two financial years; and
- Not be a registered charity or donee organisation for tax purposes.
Because these measures look at what’s happened over the previous 2 years, it’s possible your society may meet the ‘small society’ criteria one year but in other years it might not.
For the financial statements of a small society to meet the minimum requirements of the Act they will have to contain the following information:
- The society’s income and expenditure, or receipts and payments, during the accounting period; and
- The society’s assets and liabilities at the close of the accounting period; and
- All security interests affecting any of the property of the society at the close of the accounting period e.g. mortgages over buildings.
A small society can voluntarily use XRB standards if it chooses.
Larger societies will have to use one of 4 tiers of XRB standards. You will need to check which tier applies to your society and apply the reporting requirements for that tier.
If your society’s operating expenses exceed a certain threshold, your financial statements will also need to be audited. That threshold will be set by regulations this year, but is expected to be much higher than the operating expense levels of ‘small societies’.
All societies will have to comply with the new reporting regime once they re-register with the Companies Office, which can happen any time from October 2023 but must happen before mid-2026 or they will cease to exist.
We’ve made it our business to become experts at preparing incorporated societies for re-registration, so if you would like any advice or assistance in complying with the new financial reporting standards or any other requirements of the Act, please get in touch.