Many of you would have noticed we previously reported on the Reporting Regulatory Reforms, which have now resulted in an official announcement from the Ministry of Business, Innovation and Employment. This states that effective 1 April 2015, mandatory Charity quality reporting of annual financial statements will take effect. It means that
Large charities with annual operating expenditure of $1 million or over require an audit for each of the preceding two years
Medium sized charities described as having annual operating expenditure of $500,000 and above will be subject to a financial review or audit.
Please read on to find out implications for Incorporated Societies and how your organisation’s trust deed or constitution will need to be considered.
In essence this will affect only 11% of currently registered charitable entities, many of which will have existing provisions in their trust deeds requiring an annual audit. In light of this they may consider whether to maintain this provision. Although we note that recent research of 2369 registered New Zealand charities, many of the respondents said that they would still conduct an audit as it is part of the constitution. We would strongly recommend not to take the rule change lightly and at least continue to adhere to an annual review by a chartered accountant. This is not only in the interest of credibility in the eyes of funding agencies and sponsors, but also serves as a safeguard for trustees in carrying out their fiduciary responsibilities.
All charities will continue to lodge financial information with their annual return to the regulator, with an expectation that the Office of Charity Services will take a greater interest in this information in the future.
Another consideration is if recommendations of the Law Commission are embedded in a new Incorporated Societies Act. This will affect Incorporated Societies with charitable objectives, which will be required to change their status to that of a ‘charity’ and transfer to the Charities Register. We recommend that you revisit your constitution in plenty of time to ensure that you are prepared for any action you may be required to take. This is not something to leave until the last minute!
We are happy to assist with any enquiries and can provide access to experts in these areas.
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