Charities, Auditing and changing requirements

New Zealand has some 25,000 organisations registered with the Charities Commission.

Currently, the Charities Commission requires these charities to file an annual return, including financial statements, which are then available for public view.  There is no requirement for those financial statements to be audited.

Earlier in the year the Ministry of Economic Development (MED) issued a discussion document on auditing as it relates to charities, which will help them make recommendations to Cabinet for proposed changes to legislation for Not For Profit entities.

The discussion document proposes that larger charities be audited, due to a perceived need for a higher level of transparency.  The logic behind this is that if charities wish to receive funding/donations from the public then they should be accountable for how those funds are spent.  Government is also a significant stakeholder in registered charities as they have provided them with donee status and an income tax exemption.  I am sure government will not want the favourable tax status abused.

The majority of registered charities are small and the cost of mandatory audits is likely to outweigh its benefits.  To recognize this a tiered approach, based on annual operating expenditure, is proposed:

• Expenditure of $300,000 or more - an audit is required
• Expenditure $200 - $300,000 - an audit or review would be required
• Expenditure less than $200,000 - charity to decide

(A review engagement requires a lesser level of work than an audit therefore provides a lower level of assurance for a lower cost).

Submissions on the discussion document have closed and the MED is required to report to Cabinet by the end of September.  While the legislation will impact on larger charities it is also likely to provide a set of rules on "best practice" for other organisations around governance and financial reporting.

Interesting reading through the MED website, they are also proposing sets of rules for the behaviour of loan sharks and wheel clampers!!