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Tier 3 and 4 NFP standards – have your say

It is hard to believe it has been five years since the Tier 3 and 4 Not-For-Profit standards were introduced. Five years of coming to grips with preparing statements of service performance celebrating the goods and services we have delivered, and the progress charities have made toward their charitable goals.

Time to read: 5mins

It would be fair to say that the introduction of these standards was a big learning curve for all involved. Despite this, many charities rose to the challenge, preparing some fantastic Performance Reports using the standards; which is both a credit to the sector and invaluable encouragement to those reading these reports. The annual CA ANZ Charity Reporting Awards have recognised some of these great reports. Some of you may be preparing reports that rival these but have not been confident enough to submit your nomination. If so, we encourage you to enter this year – there are financial prizes to be won as well as positive recognition for your charity.

With most things, there is likely room for improvement. While the External Reporting Board, with the input of Charities Services and Chartered Accountants Australia and New Zealand, worked hard on developing the standards to be as user friendly as possible while achieving some worthy goals (which included improving the quality and comparability reporting), five years on is a great time to review the standards and think about how they could be improved.


This is where you come in!

The New Zealand Accounting Standards Board (NZASB) has begun a post-implementation review of the Tier 3 and 4 standards and is really keen to hear your feedback, both good and bad, on how the standards are working. Are they hitting the mark and achieving the goals that they set out to achieve?

The NZASB has released a short and sweet Request for Information asking for feedback on the standards overall as well as feedback on specific issues you may have encountered.

Without wanting to lead feedback in a particular direction, the NZASB is aware that some entities would like the standards to cover a broader range of transactions and allow more options. Based on areas that have come to our attention, some questions you may want to think about are:

  • Do you think the standards should allowing revaluation of investments, without needing to opt up to the Tier 1 and 2 standards?
  • Do you think with upfront recognition of revenue for multi-year grants and donations, which don’t have specific ‘use or return’ conditions is appropriate? Some smaller charities want to apply a more traditional matching approach.
  • Do you need more clarity in the standards about significant grants and donations with conditions not recorded as a liabilities?
  • Has the implementation of the standards changed the way funding providers approach the grant approval process? Are you provided with sufficient information from grant funders to align to accounting treatment? For example, getting information regarding use or return obligations?
  • Donated assets – Do you need more information on significant donated assets and what needs to go onto the balance sheet?
  • Service Performance Reporting Is your well-written Statement of Service Performance improving your chances of receiving the elusive funding dollar? Is the Statement of Service Performance adding value and actually helping your charity with strategic planning, governance and marketing yourself as a charity? Do you find that the burden of preparing your Statement of Service Performance outweighs the benefits? Are there certain areas you need more clarity on?
  • Is your Statement of Service Performance improving the conversations around your governance table? Has it helped you to get really clear about your priorities and stay on track? Has it helped the governing group articulate what you are doing for the year and the reasons why you have chosen to do these particular things? Are all of your committee or board involved in pulling together the SSP, rather than just the treasurer?

The NZASB are mindful of the fact that a large number of charities are manned by volunteers and have also prepared an online survey for you to provide feedback quickly and painlessly.


So what are you waiting for?

More information of the NZASB’s Request for Information and the online survey can be found here. Help the NZASB to refine and improve these standards so that they can best meet the information needs of users and keep improving the overall quality of performance reporting across the charitable sector.


Background and history

The current reporting standards were introduced in April 2015 and the Charities Act now requires all registered charities to use these standards. Implementing standards to improve accountability in the sector had been discussed for nearly two decades. Part of the reason why is that for-profit standards never fitted the not-for-profit sector and they required a degree of financial literacy that most small charities didn't possess. Accordingly, standards were introduced and New Zealand now has the first cash standard in the world designed especially for the very small organisations who report at Tier 4. The not-for-profit financial reporting standards represented a significant change in the way that charities do their financial reporting. Recognising that charities are vastly different in size, the standards were arranged into tiers to match the amount of reporting to a charity’s size. There are four reporting tiers and this review focusses on the standards used by the smaller charities in Tier 3 and Tier 4.


The reporting tier depends on:

  1. Your annual operating expenses or payments;
  2. Whether or not your charity has “public accountability”; and
  3. Whether you apply cash or accrual accounting.


Tier 4 charities are those that have under $125,000 annual operating expenses and use cash accounting.

Tier 3 charities have under $2 million dollars’ worth of annual operating expenses and use the accrual system of accounting.

The NZASB’s review does not include consideration of the above thresholds for each tier. The threshold between Tier 2 and Tier 3 is not being considered as it has been reviewed previously. The Tier 4 threshold is not being considered as this is enshrined in legislation[1].


[1] Section 46 of the Financial Reporting Act 2013

DISCLAIMER No liability is assumed by Baker Tilly Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this website. It is recommended that you consult your advisor before acting on this information.

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