The Ministry of Business, Innovation and Employment (MBIE), the new Government Ministry combining the previous Ministry of Economic Development, has now released a further issues paper regarding their proposals to legislate assurance over the annual financial statements for large and medium sized charities. This follows a wide range of feedback received by them on their earlier discussion paper released back in April 2012.
This new issues paper is relatively short and is called “Auditing and Assurance for Large and Medium Registered Charities – Concrete Proposals”. This indicates that MBIE is looking for any fatal flaw type feedback before legislation is drafted.
Now that the new accounting standards applying to charities and not-for-profit entities is in a bill currently before Parliament the assurance question is the last remaining piece in the financial reporting reform package.
Much comment was received by MBIE about the suggested threshold levels over which assurance would be mandatory. Hayes Knight Audit like many other industry experts felt the initially suggested thresholds were too low and would impose an unnecessary mandatory compliance burden. MBIE has listened to that feedback and the main change in the proposals is the lifting of the levels.
The proposed requirements are:
- Large registered charities – defined as those with annual operating expenditure (OPEX) of $1m or more, have their annual financial statements audited.
- Medium registered charities – defined as those that are not large with OPEX over $400,000, have their annual financial statements reviewed or audited.
- Audits and reviews can only be carried out by appropriately qualified people being chartered accountants.
- DIA Charities will in future monitor charities compliance with accounting standards on a risk basis.
Of the 25,109 registered charities in New Zealand the above proposed thresholds would see 1556 or 6% of charities fall into the large category requiring audit, and 1,593 or 6% falling into the medium but not large category.
We at Hayes Knight Audit feel that MBIE has now landed in an appropriate place, balancing the public expectation for transparency and accountability in charity financial reporting while ensuring the cost benefit equation is not out of line for the very small entities in the sector.
Of course, while this proposal defines what entities will be required by law to have, an audit or review, many others in the sector not required to will choose to do so to demonstrate their good governance and transparency to funders.
MBIE is seeking comments on this concrete proposals paper which is open for submissions until Friday 17 May 2013. To read the MBIE document and make a submission on it click here:
To read our earlier update on this proposal overhaul of charity auditing click here:
Should you wish to discuss any implications of these proposals on your entity please contact us.