New financial reporting requirements

Information about the new financial reporting requirements that are part of the incorporated society law changes

All incorporated societies are already required to prepare annual financial statements. Under the new Incorporated Societies Act you may need to change how you prepare them. Larger societies will have to use External Reporting Board (XRB) accounting standards when preparing their financial statements. If you're a 'small society', you will need to meet the minimum requirements of the Act or you can choose to adopt one of the new standards.

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.

On this page:

When these changes will happen

The new financial reporting standards will only apply to your society once it either incorporates or reregisters under the new Incorporated Societies Act. The earliest that this can happen is October 2023. That means these standards won't start applying to any societies until late-2023.

Which standards will apply to you

Once your society reregisters, you will have to start using External Reporting Board (XRB) accounting standards in your financial statements, unless your society qualifies as a ‘small society’.

As there are over 24,000 incorporated societies of all shapes and sizes, the XRB have developed 4 tiers of XRB accounting standards. The new Act sets out minimum standards for small societies and the XRB standards set out the reporting requirements for larger societies. You'll need to check which standards will apply to your society.

Criteria Standards

Total operating payments less than $50,000 in each of the previous 2 financial years

+

current assets of less than $50,000 at the end of the 2 previous financial years

+

is not a registered charity or donee organisation for tax purposes.

'Small society'
Minimum standards under Incorporated Societies Act 2022

Note - 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.

Total operating payments less than $140,000 Tier 4 XRB standards
Simple Format Reporting – Cash
Total expenses less than $2 million Tier 3 XRB standards
Simple Format Reporting – Accrual
Total expenses less than $30 million Tier 2 XRB standards
PBE Standards with reduced disclosure requirements (RDR)
“Public Accountability” or total expenses greater than $30 million Tier 1 XRB standards
PBE Standards – Based on IPSAS

Read definitions for some of these accounting terms

Current assets

Current assets are the assets that your society owns and expects to use or turn into cash within a year. Fixed assets are resources for long term use (for example, a building, furniture, computer equipment).

Donee organisations

Donee organisations are mainly those that are registered charities. They have arranged with Inland Revenue for their donors to receive tax benefits for any donations made . If you just have a letter from Inland Revenue recognising your society as a not-for-profit, that’s not enough to be considered a donee organisation. 

Operating payments

Most payments you make day-to-day will be operating payments (for example, paying rent on premises, salaries and wages, electricity, repairs and maintenance). It also includes other payments such as grants and interest on loans. If you pay money to buy an asset (such as furniture, computer equipment, or a vehicle), that would be excluded as that's considered a capital payment or expense.

Total expenses

Total expenses include all payments your society has made, even if the payment relates to buying an asset. It would also include things like interest payments on a loan and grants made to other organisations or individuals.

Small societies will need to meet the minimum standards

To meet the minimum standards for financial statements they will need to contain the following information:

  1. the society's income and expenditure, or receipts and payments, during the accounting period, and
  2. the society's assets and liabilities at the close of the accounting period, and
  3. all security interests affecting any of the property of the society at the close of the accounting period. For example, mortgages over buildings.

Once the regulations are finalised we will publish more information on how these 'minimum standard' financial statements should be presented.

Your small society can choose to adopt XRB standards

Even if your society meets the criteria of a 'small society', you can voluntarily choose to prepare your financial reports in accordance with standards issued by the XRB.

See an example of a 'small society'

  • X-Ville Squash Club is an incorporated society whose financial year ends on 31 December.
  • It reregisters in 2024 and early in 2025 begins preparing its 2024 financial statements.
  • It spent around $5,000 in 2022 and $9,000 in 2023 and has not received 'donee status' from Inland Revenue. It therefore meets the first and third criteria for being a small society.
  • In terms of assets, it had around $15,000 in the bank at the end of 2022 and around $20,000 at the end of 2023 (liquid assets), and also owns a squash court building worth $170,000 (fixed assets). Because the second limb of the test for a small society only considers liquid assets, the society meets the second criterion for being a small society.

Conclusion

For the purposes of its 2024 financial year, X-Ville Squash Club is a small society and so need not follow XRB accounting standards.

It's unlikely that you'll be required to have an audit

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 in 2023, but is expected to be much higher than the operating expense levels of 'small societies'.

Larger societies will need to use XRB standards

The XRB have developed 4 tiers of XRB accounting standards. As a larger society you will need to check which tier applies to your society then apply the reporting requirements for that tier.

You can get information about all of the tiers and standards from the XRB website.

Tier 4

The next step up from a 'small society' is a tier 4 society. If your society is not a 'small society' and it has total operating payments of less than $140,000, it will need to adopt Tier 4 accounting standards.

Tier 4 accounting standards

If your society is in this tier it is still considered relatively small. It will have simpler reporting requirements which are cash based and are easy to understand and follow.

The XRB has been consulting on the accounting standards for Tier 4 and will finalise the reporting requirements shortly. They will also publish templates and guidance notes that will help societies prepare their financial statements in line with the new requirements.

Tier 3

The next step up from tier 4 is a tier 3 society. If your society is not a 'small society' or a tier 4 society and it has total expenses of less than $2 million, it will need to adopt Tier 3 accounting standards. 

Tier 3 accounting standards

Like a tier 4 society, it is it will have simpler reporting requirements which are easy to understand and follow but they will be accrual based.

The XRB has been consulting on the accounting standards for Tier 3 and will finalise the reporting requirements shortly. They will also publish templates and guidance notes that will help societies prepare their financial statements in line with the new requirements.

Tier 2 & 1

The tier 2 and tier 1 standards are for the largest societies. Tier 2 are those that spend over $2 million a year while societies that spend over $30 million per year would meet tier 1 criteria.

We expect that only a small number of societies will fall into these categories and most are probably already doing some form of formal reporting.

Tier 2 & 1 accounting standards

For the top 2 tiers the standards are based on international standards issued by the International Public Sector Accounting Standards Board. They are complex and we imagine societies will have, or will need, assistance from a professional to prepare theire financial reports.

You might be required to have an audit

If your society's operating payments exceed a certain threshold, your financial statements will also need to be audited. That threshold will be set by regulations in 2023. Some tier 1 and 2 societies will to need to have their statements audited, but it's likely the threshold will be set higher than the operating payment levels of tier 3 and tier 4 societies.

Read definitions for some of these accounting terms

Operating payments

Most payments you make day-to-day will be operating payments (for example, paying rent on premises, salaries and wages, electricity, repairs and maintenance). It also includes other payments such as grants and interest on loans. If you pay money to buy an asset (such as furniture, computer equipment, or a vehicle), that would be excluded as that's considered a capital payment or expense.

Total expenses

Total expenses include all payments your society has made, even if the payment relates to buying an asset. It would also include things like interest payments on a loan and grants made to other organisations or individuals.

Cash based accounting

Cash-based accounting is often used by organisations where transactions tend to be small in number and size, and relatively uncomplicated. If you use cash accounting your society only recognises income and expenses when money is received or paid.

For example, you don’t recognise income until you have received the cash (even if you’ve already sent an invoice). Similarly, you don’t recognise expenses until you've actually paid them (even if you've received an invoice or bill from your supplier).

Accrual based accounting

If you use accrual accounting you recognise income based on both the cash received and the amounts owing from others (accounts receivable) at the reporting date.

If your society received confirmation that it will receive a grant, but it has not yet been paid, you would still record this as income. When an invoice or bill comes in for services provided by the supplier, you recognise an expense even if you won't be paying the bill for another 30 days.

Accrual-based accounting also allows for concepts such as depreciation and bad debts because it results in the preparation of a balance sheet (a statement that reports all assets owned and all liabilities owed by your society).

See an example of a society that's not a 'small society'

  • Y-Ville Golf Club is an incorporated society whose financial year ends on 31 December.
  • It reregisters in 2025 and early in 2026 begins preparing its 2025 financial statements.
  • Although it has not received 'donee status' from Inland Revenue, and spent only around $30,000 in 2023, it spent around $55,000 in 2024.
  • It also had around $500,000 in the bank at the end of 2023 and around $450,000 at the end of 2024 (liquid assets).

While the society meets the third criterion for being a small society, it does not meet the first or second.

Conclusion

For the purposes of its 2025 financial year, Y-Ville Golf Club is not a small society and so will need follow XRB accounting standards.

No changes if your society is already a registered charity

If your society is registered as a charity you will already be using XRB reporting standards for your financial statements and filing them with Charities Services. This won't change.

If you are also already having your financial statements examined by an independent auditor or reviewer as required by the Charities Act 2005, this won't change either.

Related information and resources

Webinar - August 2022

In August we hosted a webinar on the financial reporting requirements under the new Act. Our webinar included slides with commentary delivered by representatives from the External Reporting Board (XRB) and the Ministry of Business, Innovation and Employment (MBIE).

We have published a recording of the webinar, a copy of the slides that formed the basis of the webinar and the questions and answers. 

XRB information for incorporated societies

We are working with the XRB to provide detailed guidance and information to help societies understand what will be needed. In the coming months the XRB will also be publishing templates that your society will be able to use to prepare your financial statements.

In the meantime, you can check the XRB website where they have published a series of questions and answers to help societies understand their reporting requirements.

The legislation - the Act and the Regulations

Sections 102-108 of the Incorporated Societies Act 2022 cover financial reporting. Below are links to sections we've specifically referred to on this page.

  • Definitions, including the definition of a 'small society' - section 103.
  • Minimum reporting requirements of small societies - section 104.

Regulations are being developed now to support the new Act and will clarify some of the details around financial reporting. You will be able to review the draft regulations, and provide feedback on them, around the middle of 2023.

How you can stay up to date

We will update the information here on our website throughout the transition period. You can also choose to receive updates from us directly to your inbox. Alternatively, you can follow us on Facebook.

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If you have any questions or comments about these law changes, you can email us at engage@societies.govt.nz.

Published 8 July 2022, updated 23 November 2022