All incorporated societies are required to prepare annual financial statements. Under the Incorporated Societies Act 2022 (2022 Act) you may need to change how you prepare them, and some larger societies will also need to have their financial statements audited.
On this page:
- New reporting standards
- Audit requirement
- When these changes will happen
- Which standards will apply to your society
- Small societies will need to meet the minimum standards
- Larger societies will need to use XRB standards
- No changes if your society is already a registered charity
- Related information and resources
Larger societies must 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 set out in the 2022 Act or you can choose to adopt one of the new XRB standards when preparing your financial statements.
Your society must have its financial statements audited if —
- it is not a charitable entity and
- in each of the 2 preceding accounting periods of the society, the total operating expenditure of the society and all entities it controls (if any) are $3 million or more.
- The new financial reporting standards will only apply to your society once it registers or reregisters under the 2022 Act. The earliest that this can happen is on or after 5 October 2023.
- Following this, when your society prepares its next set of financial statements those statements must meet the requirements of the 2022 Act.
Once your society reregisters, you will have to start using 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.
Total operating payments less than $50,000 in each of the previous 2 financial years
Total 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.
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
Definition of total current assets
‘Total current assets’ is defined in the regulations and means the total value of the society’s assets that each individually satisfy any 1 or more of the following criteria:
- The society expects the asset to be realised, consumed, sold, or otherwise disposed of within 12 months after the society’s balance date of the relevant period.
- The asset is primarily held for the purpose of being traded.
- The asset is cash or a cash equivalent and is not restricted from being exchanged or used to settle a liability for at least 12 months after the society’s balance date of the relevant period.
The regulations also set out the meaning of 'cash', 'cash equivalent' and 'value' in this context.
To meet the minimum standards for financial statements they will need 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. For example, mortgages over buildings.
If your society's operating payments meet the threshold to be a ‘small society’, your financial statements will not need to be audited.
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.
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.
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.
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.
If your society meets the following criteria, it will also need to have its financial statements audited —
- if it is not a charitable entity and
- if in each of the 2 preceding accounting periods of the society, the total operating expenditure of the society and all entities it controls (if any) are $3 million or more.
This will cover all Tier 1 societies and some Tier 2 societies but will not cover societies that fall within Tier 3 or Tier 4.
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.
Sections 102 to 108 of the Incorporated Societies Act 2022 and regulations 15 to 16 of the Incorporated Societies Regulations 2023 cover financial reporting.
Some of the relevant sections and regulations include —
- Definitions, including the definition of a 'small society' — section 103 of the Act.
- Definition of 'Total current assets' — Regulation 15
- Audit threshold for large societies — Regulation 16
- Minimum reporting requirements of small societies — section 104 of the Act.
We will update the information here on our website throughout the reregistration period. You can also choose to receive updates from us directly to your inbox.Sign up to receive updates from us
If you have any questions or comments about these law changes, you can email us at email@example.com.
Published 8 July 2022, updated 5 October 2023