Tier 4 (NFP) Standard

1. This Standard sets out the minimum information required to be reported in the annual Performance Report (sometimes referred to as financial statements) of not-for-profit (NFP) entities that are eligible, and elect, to apply the Tier 4 (NFP) Standard to meet their statutory reporting requirements.

2. The Standard is typically used by NFP entities with annual operating payments under $140,000.

3. The Appendix to this Standard provides information about preparing a Performance Report in accordance with this Standard for the first time.

4. This Standard requires entities to report cash-based financial information (in the “Statement of Cash Received and Cash Paid”) and information about what the entity has done in the financial year (in the “Statement of Service Performance”). These statements, and the accompanying notes, are collectively known as the “Performance Report”.

5. The Performance Report aims to provide its readers (such as members, funders, donors, and the general public) with useful information about an entity’s performance in financial and non-financial terms for the financial year.

6. Optional reporting templates and guidance material have also been developed to help entities meet the requirements of this Standard. In addition, terms used throughout the Standard have been included in the Glossary on pages 16-17.

7. This Standard applies to NFP public benefit entities (PBEs) that are eligible, and elect, to apply this Standard.

PBEs are defined by XRB A1 Application of the Accounting Standards Framework as “reporting entities whose 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”

8. Most NFP entities are PBEs for financial reporting purposes. XRB A1 provides further information about whether a reporting entity is a PBE and eligible to apply this Standard.

9. NFP PBEs should consider whether they are subject to any statutory reporting requirements (through legislation or other regulations) to report in accordance with accounting standards issued by the XRB and whether the statutory requirement permits the use of this Standard (referred to in legislation as a non-GAAP Standard due to being cash-based).¹

10. The Charities Act 2005 requires registered charities to prepare annual financial reports in accordance with accounting standards issued by the XRB. The Incorporated Societies Act 2022 also requires societies to prepare annual financial reports in accordance with accounting standards issued by the XRB, except for those defined as ‘small’².

¹ EG A1 – Explanatory Guide: Guide to Application of the Accounting Standards Framework, provides further guidance of the reporting requirements for entities that have a regulatory obligation (or that elect under an enactment) to prepare general purpose financial reports in accordance with XRB standards.

11. Registered charities and incorporated societies which are not registered charities can choose to satisfy their statutory reporting requirements by using this Standard if:

1. They do not have public accountability as defined for financial reporting purposes; and

2. They have annual operating payments under $140,000.

Please refer to the Glossary for further information on how “annual operating payments” and “public accountability” are defined for financial reporting purposes.

12. A NFP entity that controls other entities (see paragraphs 18-19) must also take into account the operating payments of the entities it controls when determining its annual operating payments for the purpose of determining its statutory reporting requirements.

13. The Performance Report must include the following parts:

1. Entity Information, which provides readers with general information about the entity;

2. A Statement of Service Performance, which explains the main activities the entity has undertaken during the financial year to achieve its objectives;

3. A Statement of Cash Received and Cash Paid for the financial year; and

4. Notes, to provide other useful information to support readers’ understanding of the statements above.

14. The Performance Report is usually prepared for a twelve-month period that ends on the entity’s “balance date” (sometimes referred to as an entity’s “year-end” or the “reporting date”).³ This period is described as the entity’s “financial year”. For example, if an entity has a 31 December balance date, the financial year will be from 1 January to 31 December.

15. The Performance Report is required to include information about the entity’s transactions (as processed through the entity’s bank account or physical cash transactions) for the financial year.

16. The reporting entity is an organisation that is required by law or elects to prepare a Performance Report in accordance with this Standard. The reporting entity will typically be the legal entity incorporated under the Incorporated Societies Act 2022, Charitable Trust Act 1957, or other legislation.

17. The reporting entity, for which the Performance Report is prepared, includes the transactions of any branches or other operating units of the reporting entity. This is done by collating information from all the entity’s branches and operating units and excluding any internal transactions between these branches/units, so that the Performance Report treats the organisation as one reporting entity.

18. Where a reporting entity controls⁴ one or more entities and the total combined operating payments⁵ of the reporting entity and all its controlled entities are less than $140,000, a reporting entity that elects to use this Standard is not required to prepare a consolidated Performance Report.

19. Where the total combined operating payments exceed $140,000, the reporting entity cannot apply this Standard and is required to apply the tier criteria in XRB A1 to determine the appropriate tier for reporting.

20. The following information must be included at the top of each page of the Performance Report:

1. The name of the entity; and

2. The financial year the Performance Report covers.

21. All amounts should be reported in New Zealand Dollars unless the entity’s main bank account is denominated in a foreign currency. If an entity prepares its Performance Report in a currency other than New Zealand Dollars, it must disclose that fact and the currency in which the Performance Report is prepared as part of the notes to the Performance Report.

22. Amounts reported in the Performance Report must be rounded to the nearest dollar (i.e., the rounding of any cents).

23. Comparative information as reported in the previous financial year must be included for each balance, transaction and main activity included in the current financial year’s Performance Report (refer to the Template Performance Report).

24. Budgets, or other forecast information, are not required to be included in the Performance Report.

25. The way an entity chooses to present information in the Performance Report must be consistent from one financial year to the next unless the entity’s operations or activities have significantly changed, or a different format is more useful to the readers.

26. Any changes to the way information is presented in the current financial year, in contrast to the previous financial year, must also be made to the presentation of comparative amounts unless it is not practical to do so.

27. Cash received and cash paid must not be netted off against each other, even if they relate to a similar activity. For example, the net proceeds from a community fair must not be reported as one balance. Instead, the Statement of Cash Received and Cash Paid must report separate amounts for the total cash received and the total cash paid for running the community fair.

28. Generally, the Performance Report should report transactions on a GST inclusive basis (i.e. the total amount received or paid including any GST) because this will match the cash transactions recorded in the entity’s bank account(s). The total balance of GST paid to, or refunded by, the IRD for the financial year must be reported separately in the Statement of Cash Received and Cash Paid (refer to Table 1 on page 9).

29. An entity may choose to report on a GST exclusive basis so long as a consistent approach is taken.

30. Errors identified that relate to previous financial years must be disclosed in the notes to the Performance Report in the financial year in which the errors were identified. There is no requirement to restate comparatives. An example of an error would be the reporting of an incorrect bank balance from the previous financial year (refer to paragraph 83).

31. In addition to the required information set out in this Standard, the entity may disclose any other information that would be useful to provide readers with a full understanding of the entity’s performance for the financial year.

32. It is important that readers can determine who authorised the Performance Report and when it was authorised as the Performance Report does not reflect any events after this date. The Performance Report is authorised when it is signed and dated by the entity’s governing body or individuals who may authorise on its behalf (e.g., the trustees of a trust or the committee of an incorporated society).

33. The Performance Report must include the date the Performance Report was approved, who gave that authorisation, and the relevant signature(s).

34. In meeting the requirement in paragraph 33, an electronic or digital authorisation may be used instead of a physical signature.

35. The purpose of the Entity Information section is to provide general information about the entity.

36. The following information must be included in the Performance Report:

1. The entity’s name (including any trading names); and

2. The type of entity or its legal form.

37. The purpose of the Statement of Service Performance is to provide information to help readers understand what the entity did during the financial year to achieve its objectives.

38. In the Statement of Service Performance, an entity must:

1. describe the main activities undertaken during the financial year; and

2. quantify, as far as possible, the main activities undertaken during the financial year.

39. The Statement of Service Performance only needs to provide information about the entity’s main activities. An entity does not need to include a detailed account of everything it has done in the financial year.

40. When selecting the information to include in its Statement of Service Performance, the entity must consider the information needed for readers to gain an overall understanding of what it has done during the financial year to achieve its objectives.

41. An entity may present the information in the Statement of Service Performance using whichever format it considers to be the most helpful to provide readers with an understanding of the entity’s main activities. For example, an entity may choose to present the information using:

1. graphs;

2. tables;

3. narrative descriptions; or

4. images or infographics showing the entity’s main activities during the financial year.

The Tier 4 (NFP) Reporting Template provides a simple format that an entity may choose to use.

42. The purpose of the Statement of Cash Received and Cash Paid is to summarise all cash received and all cash paid by the entity during the financial year. This Statement accounts for all transactions processed through the entity’s bank account(s) and/or any physical cash transactions in the financial year.

43. The Statement of Cash Received and Cash Paid groups transactions under two main headings – operating activities and other activities. Under each of these headings, transactions are then grouped into the applicable line items as shown in Table 1.

44. The Statement of Cash Received and Cash Paid must be presented using the format and applicable line items as shown in Table 1 below.

45. Further breakdowns of the line items can be provided in the notes to the Performance Report, although this is not required. For example, an entity may include a summary list of contributions from major donors and grant providers in the notes, if the entity considers this would be useful to the readers of the Performance Report.

46. Individual line items and headings, listed in Table 1, do not need to be included if the entity does not have any transactions that fall under these line items and headings in the current or previous financial year.

47. An entity may choose to use different wording to describe the line items in Table 1, if more appropriate to explain its transactions and assist with readers’ understanding.

48. The opening and closing balance in bank account(s) and any cash on hand includes all bank account balances (cheque or savings accounts) and any undeposited cash held by the entity. It also includes any term deposit balances held and any bank account balances in overdraft.

49. Cash received includes all transactions that increase the entity’s bank account(s) balance during the financial year, including any undeposited cash at the end of the financial year.

50. Cash paid includes all transactions that resulted in a decrease in the entity’s bank account(s) balance during the financial year, including any payments made directly from cash on hand.

51. Transfers between bank accounts and/or term deposits held by the entity must not be recorded in the Statement of Cash Received and Cash Paid because this does not change the total balance of cash held by the entity.

52. Operating activities are the day-to-day activities of the entity and include all transactions that are not classified as other activities.

53. A service delivery grant/contract is an agreement to receive funds that is, in substance, a contract for the delivery of specified goods or services, as agreed with the funder, whereas a general grant is not linked to the delivery of specific goods or services. For example, an agreement where an entity receives funding based on the number of patients seen at a community health clinic, is likely to be a service delivery grant/contract, whereas an agreement to receive a fixed amount of funding to operate the community health clinic for a period of time is likely to be a general grant.

54. Cash received from the sale of goods and services are where goods or services are sold on commercial terms for the primary purpose of making a profit. The profits earned are then used to help fund the delivery of the entity’s primary objectives.

55. Other activities include:

1. cash paid to purchase investments or cash received from the sale of investments (investments include shares in a company and government bonds);

2. cash paid to purchase other assets or cash received from the sale of other assets. Other assets include any item of property, plant, or equipment with an expected life greater than twelve months; and

3. cash received from loans or borrowings and cash paid to repay loans or borrowings.

56. If there is difficulty determining how a transaction should be grouped, the entity may include cash received in “other cash received” or cash paid in “other cash paid”.

57. The purpose of the notes to the Performance Report is to provide additional information to support the reader’s understanding of the entity’s performance for the financial year.

58. The notes must include the following information about the basis for preparing the Performance Report:

1. The entity has prepared the Performance Report in accordance with the Tier 4 (NFP) Standard issued by the External Reporting Board (XRB);

2. The entity is permitted by its governing legislation to apply the Tier 4 (NFP) Standard to meet its statutory reporting requirements, and has elected to do so; and

3. All transactions included in the Statement of Cash Received and Cash Paid and related notes to the Performance Report have been reported on a cash basis.

59. Example note disclosure:

60. The notes must include information about whether:

1. the entity is registered for GST; and

2. the Performance Report is prepared on a GST inclusive or GST exclusive basis.

61. Example note disclosure:

62. The purpose of this note is to provide information about assets owned by the entity at the end of the financial year which are considered to be significant to a Tier 4 entity.

63. As bank accounts are already reported in the Statement of Cash Paid Received and Cash Paid, this note is focused on providing information about other significant assets an entity owns.

64. The note on significant assets must be presented using the format and applicable line items as shown in Table 2 below.

65. For each applicable line item in Table 2, the entity is required to disclose the total monetary amount, if easily available, based on either:

1. the total amount paid to purchase the significant assets; or

2. the total estimated current value of the significant assets⁷ (this may be based on an estimated replacement cost basis, estimated sale price or, for land and buildings, rateable values can be used).

66. Where a current value estimate is used to meet the requirement in paragraph 65(b), the source of this estimate must be disclosed.

67. The assets as listed in Table 2 are considered to be significant to a Tier 4 entity and must be disclosed if held by the entity, regardless of whether the assets were purchased or donated.

68. An entity may omit any of the line items in Table 2 if it does not own assets of that type.

69. This note is not expected to list all assets owned by the entity, as this would not be practical when recording transactions on a cash basis. An entity that wishes to fully account for and report all assets owned should instead use the Tier 3 (NFP) Standard.

70. The purpose of this note is to provide information about liabilities owed by the entity at the end of the financial year which are considered to be significant to a Tier 4 entity.

71. Liabilities are amounts which the entity owes to external parties (where the settlement of the liability cannot be avoided – i.e., the external party can enforce repayment).

72. The note on significant liabilities must be presented using the format and applicable line items as shown in Table 3 below.

73. For each applicable line item in Table 3, the entity must disclose the total monetary amount expected to be paid in a future period to fully settle the liability.

74. The liabilities listed in Table 3 are considered to be significant to a Tier 4 entity and must be disclosed if owed by the entity.

75. An entity may omit any of the line items in Table 3 if it does not owe any liabilities of that type.

76. The information in Table 3 is not intended to list all the entity’s liabilities, as this would not be practical when recording transactions on a cash basis. An entity that wishes to fully account for and report all liabilities, should instead use the Tier 3 (NFP) Standard.

77. The purpose of this note is to provide readers with information about any significant transactions with related parties the entity has entered into during the financial year, and any significant amounts owing to or from related parties at the end of the financial year.

78. A related party transaction is a transfer of money, goods, or services between the reporting entity and a related party. Related parties include:

1. other entities that control, or are controlled by, the entity;

2. associates (i.e., other entities over which the entity has significant influence);⁸

3. individuals that have significant influence over the decisions of the entity (such as officeholders, committee members, or others that are involved in the strategic management of the entity – this could include individuals who are employees or volunteers);

4. other individuals or entities that have significant influence over the entity’s operations; and

5. close family members of those individuals described in (c) and (d) above (such as a partner, child, partner’s child, dependents, or a partner’s dependents).

79. The reporting of related party transactions provides important information to readers of the Performance Report. The disclosure of related party transactions is considered important because:

1. Related party relationships can influence how an entity operates; and

2. Related party relationships might expose an entity to risks, or provide opportunities, that would not have otherwise existed because related parties may enter into transactions on different terms and conditions than would normally be available to unrelated parties.

80. The notes must include for each significant related party transaction for the financial year:

1. A description of the related party relationship;

2. A description of the transaction (e.g., the services provided by the related party); and

3. The total amount paid to (or received from) the related party during the financial year.

81. The notes must also include the balance of any significant amounts owed to (or owing from) a related party at the end of the financial year (including any amounts loaned or advanced).

82. Examples of related party transactions include:

1. the entity selling a significant asset to the spouse of a board member;

2. the entity providing free services to the child of the board chair;

3. the entity loaning cash at below market rates to a board member; and

4. a member of the board providing professional services (e.g., accounting or legal services) to the entity at no cost (noting these services only require disclosure, if significant).

83. The purpose of this note is to provide readers with information about any errors relating to previous years that have been corrected in the current year’s Performance Report. An example of an error would be the incorrect recording of a closing bank balance from the previous year’s Performance Report.

84. Unless an error is clearly trivial (e.g., rounding errors), the notes must include the following for every error relating to a previous financial year that has been corrected in the current Performance Report:

1. The nature of the error; and

2. How the error has been corrected in the current financial year.

85. An entity may include in the notes any additional information it considers necessary for readers to understand the overall performance of the entity. For example, an entity may want to disclose information about:

1. events after the financial year end (see paragraph 86); and/or

2. grants or donations received with expectations over use (see paragraph 87).

86. Events after the financial year are those significant events, both favourable and unfavourable, that occur between the end of the financial year and the date when the Performance Report is signed as approved by the governing body. For these events, the entity may want to disclose:

1. the nature of the event;

2. an estimate of any cash expected to be received or paid; and

3. the effect (if any) the event has on the entity’s ability to continue operating.

87. If the entity has received any significant grants or donations with an expectation that the funds received will be used for a specific purpose or in a particular way, and those expectations have not been fully met at the end of the financial year, it may want to report information about:

1. The amount of significant grants or donations received which are expected to be used in future financial years (i.e., the balance of grants or donations which have not yet been spent at the reporting date); and

2. The nature of the expectations and conditions over future use of the funds received, including whether the grant/donation provider can require the unspent funding to be returned.

88. This section sets out when the Standard commences to apply.

89. This Standard takes effect on the 28th day after the date of its publication under the Legislation Act 2019. The Standard was published on 18 May 2023 and takes effect on 15 June 2023.

90. The accounting periods in relation to which this Standard commences to apply are:

1. for an early adopter, those accounting periods following, and including, the early adoption accounting period; and

2. for any other reporting entity, those accounting periods following, and including, the first accounting period for the entity that begins on or after the mandatory date.

91. In applying paragraph 90:

early adopter means a reporting entity that applies this Standard for an early adoption accounting period.

early adoption accounting period means an accounting period of the early adopter:

1. that begins before the mandatory date but has not ended or does not end before this Standard takes effect (and to avoid doubt, that period may have begun before this Standard takes effect); and

2. for which the early adopter:

   1. first applies this Standard in preparing its financial statements; and

   2. discloses in its financial statements for that accounting period that this Standard has been applied for that period.

mandatory date means 1 April 2024.

1. This Appendix provides information to assist an entity in preparing its first Performance Report under the Tier 4 (NFP) Standard.

2. There are two circumstances where an entity will apply the Tier 4 (NFP) Standard for the first time:

1. New entities; and

2. Continuing Entities.

3. New entities are those entities that began operating in the current financial year. Typically, these entities will start with a nil bank account(s) balance.

4. A new entity must disclose its date of commencement in the notes to the Performance Report. The date of commencement will either be when the entity was legally incorporated or the date of receiving the first amount of funding.

5. No comparative information is required when a new entity prepares its first Performance Report in accordance with this Standard.

6. Continuing entities are those entities that have not applied the Tier 4 (NFP) Standard in the previous financial year but have been operating prior to the current financial year. This includes entities that have been applying other accounting standards in the previous financial year, for example, NZ IFRS PBE, Old GAAP or Reporting Requirements for Tier 3 Not-for-Profit Entities.

7. These entities have two options when applying the Tier 4 (NFP) Standard for the first time:

8. The entity must attach the financial statements for the previous financial year to the Performance Report.

9. Comparative information prepared in accordance with the Tier 4 (NFP) Standard is not required.

10. Under this option, an entity must prepare a Performance Report in accordance with all the requirements of the Tier 4 (NFP) Standard for the purpose of obtaining comparative information for the current year. This means that the current financial year’s disclosures and the previous financial year’s disclosures will be reported on the same basis.