Review of the Charities Act – Accumulation of Funds
This article is in continuation to our last article regarding the post- implementation review of the...
This article will help charities, with annual expenditure under $2m, understand their obligations with regards to Simple Format Reporting and the preparation of their ‘Performance Report’.
For Tier 3 charities, Performance Reports must be prepared and submitted along with the charity’s annual return within 6 months of their year end. The Performance Report includes a number of new requirements such as a Statement of Service Performance and Cash Flow Statement.
In determining a charities total annual expenditure, it is important that consideration is given to whether the charity controls another organisation.
Control for financial reporting purposes is defined as the power to govern the financial and operating policies of another organisation in order to benefit from its activities. To determine whether a control relationship exists, a charity must review its founding documents together with the founding documents of the organisation in question. Judgement is needed to determine whether it has the power to govern and receive benefits from the organisation’s activities.
Charities in this situation will need to include information about these organisations by providing a consolidated Performance Report. In such cases, the combined expenditure of the charity and the organisation/s they have a control relationship with, could mean that the charity is required to report in a higher tier. For example, a charity’s annual operating expenses are $1.5 million (thereby qualifying for Tier 3), the annual operating expenses of a separate organisation they control are $1 million. The combined expenditure would be $2.5 million and the charity would be required to report consolidated financial statements in accordance with the requirements of Tier 2 standards.
If your charity determines that it controls other organisations and therefore is required to prepare a consolidated Performance Report, you must follow the processes for consolidation of the Tier 2 Standard “PBE IPSAS 6: Consolidated and Separate Financial Statements”, even if you are still eligible to prepare your Performance Report in accordance with the Tier 3 standard.
If you would like further assistance regarding interpreting potential control relationships or any other not for profit reporting matter please get in touch.