About reporting Tiers and reporting sectors

Not-for-profit entities are Public-Benefit-Entities (“PBEs")

PBEs are “entities where the primary objective is to provide goods or services for community or social benefit and where any equity has been provided with a view to supporting that primary objective rather than for a financial return to equity holders.”

Some PBEs may be public sector entities instead of not-for-profit entities and will need to apply the public sector accounting standards as opposed to the not-for-profit accounting standards.

These entities are defined in paragraph 5 of Public Audit Act 2001 and includes all Offices of Parliament. Examples include all public service departments, crown entities, educational bodies (such as schools and universities), state enterprises, airport companies, licensing trusts, local authorities and councils, council-controlled organisations, port companies, community trusts.

There are four different tiers of reporting requirements for not-for-profit entities. We expect most incorporated societies will be not-for-profit entities.

 *Applicable for financial years ending 31 March 2024 and later. Any financial year ends that ended prior to 31 March 2024 will be subject to the previous tier size thresholds (Tier 1 - total expenses over $30 million, Tier 2 - total expenses under $30 million and over $2 million, Tier 3 - total expenses under $2 million and operating payments over $140,000).

On the off chance that your society is a for-profit entity, you have two different tiers of reporting requirements depending on whether your society is publicly accountable (as defined in XRB A1).

If your society controls other entities or is the head of a group of entities, you may be required to consolidate (add the financial statements together to produce one set of financials for the group). If this is the case, to determine the Tier you will need to report against you will need to compare the Tier threshold with your consolidated position, rather than your stand-alone position. 

For example, if you are a society that owns subsidiary companies you will need to add the financial information from these entities to your own to produce a group position. You would then compare the Tier threshold to the total expenses/total operating payments (as applicable) reported in your group position.

Alternatively, if you are a national society that operates in conjunction with and is closely aligned to separate regional societies (or incorporated branches of your society), you may need to consider whether you have control of the regional societies as outlined in the criteria contained in PBE IPSAS 35 (if you are a PBE) or NZ IFRS 10 (if you are for-profit). If the conditions of control are met, you will be required to compare the Tier thresholds to the total expenses/total operating payments (as applicable) reported in your group position.

If you are a not-for-profit society and your current financial year operating payments are more than $140,000 but your two preceding financial years' operating payments were less than $140,000 each, you are eligible to apply Tier 4 (instead of Tier 3) if you choose. 

You are able to voluntarily apply a Tier higher than the one you may be eligible for. This may be preferable if for instance you practice accrual accounting (if you prepare financial statements on an invoice basis not just from recording cash transactions) but are eligible for Tier 4 – you may prefer to apply Tier 3 rather than reverting to a cash basis of accounting for Tier 4.

The regulations for incorporated societies state that a society must be audited if:

• it is not a charity; and
• it has operating expenses of $3 million or more in each of the last two financial years (including expenses incurred by any other organisations that it controls).

You can find more information in section 16 of the regulations.