Incorporated societies: Are you ready for new reporting standards?

Societies must re-register under the new Act to remain incorporated, and once that happens, they must comply with the XRB financial reporting standards (most incorporated societies are likely to be subject to the standards for public benefit entities).

If your society is also a registered charity or is already voluntarily complying with XRB PBE standards, the reporting process won’t change much – but there are other changes to the Act that will affect your organisation.

If your society isn’t already reporting in accordance with XRB financial reporting and plans to remain incorporated, you will need to plan ahead to make sure your reporting complies. It’s also important to note that the day you re-register is the day you have to use any new reporting.

To help get you started, here are five important questions to ask yourself.

1  Which reporting tier does your organisation fall under?

The first step in complying with the new reporting standards is to establish your organisation’s reporting tier. Total expenses for the purpose of determining a reporting threshold include all of an entity’s operating expenditure. This includes grants or donations made by an entity but does not include capital expenditure (assets) or loan payments. 

Note: an entity is also required to apply Tier 1 if it has "public accountability".

Small societies are those that have total operating payments below $50,000 in each of the previous 2 financial years, and total current assets of below $50,000 at the end of both years. They cannot be a registered charity or donee organisation for tax purposes.

Small societies are not required to comply with XRB PBE standards, instead they only need to meet the minimum standards for reporting as set out in the Incorporated Societies Act 2022.

2  How are the requirements for your new tier different?

Once you are clear about the tier that applies to your entity, the next job is to understand how the XRB PBE standards differ to your current reporting practices. There will almost certainly be some differences, but the size of the gap will vary hugely between organisations. Some will have just a few tweaks to make, while others will have a substantial amount of work to do. XRB PBE standards are comprehensive and prescriptive, and accounting approaches differ significantly to special purpose financial reports, especially in areas like revenue recognition, asset valuation, and disclosure requirements.

3  Do you need a statement of service performance?

A major change for first time adoption of XRB PBE standards will be service performance reporting. If your organisation is producing a statement of service performance for the first time, you might have a bit of homework to do. It depends entirely on the type of activities your organisation does, and its purpose. What quantifiers and qualifiers can you use to demonstrate and measure your success?

Service reporting is all about your non-financial performance – the data that showcases the most meaningful parts of what your entity does. It is an opportunity for everyone see the fantastic work you are doing, and you might be surprised at the potential benefits of non-financial reporting.

4  When do you need to start the transition?

Our recommendation is to start the process of moving to XRB PBE standards at least six months before your first balance date after re-registration. Six months might feel like a long time, and it might not be necessary for all entities, but we suspect people are underestimating how much time and energy this will take.

You will need to take your time to assess any specific issues or complexities that your society faces – not only for differences in accounting approaches but also for disclosures (such as key personnel remuneration and related party transactions).

Your first balance date for reporting in accordance with XRB PBE standards depends on when you re-registered – here’s some examples for an entity that has a 31 March balance date:

Plus, don’t forget that entities are required under the Incorporated Societies Act 2022 to file their financial statements with the Registrar of Incorporated Societies within six months of your balance date – this means that the financials need to be prepared, audited and approved by members at your Annual General Meeting (AGM), all within a six month window. Preparing as much as you can before the balance date will make this six-month period much less stressful. 

5  Do you need to line up an auditor? 

If your entity has expenditure north of $3 million, or if your constitution requires it, the financial statements must be audited by an independent external auditor. If you do not already have an independent external auditor that you work with, we recommend you appoint one as soon as you start the transition to XRB PBE standards. They can work with you through the process, keeping your reporting in line with what is required. Otherwise, you risk sending the auditor your financials at a later date and discovering you’ve headed a long way down the wrong track. Backtracking after the due date is always more expensive and time consuming than getting it right the first time. 

Your costs will be higher, but there are benefits 

This probably feels like a significant burden for your incorporated society, and that’s not surprising. XRB PBE standards call for a higher standard of reporting, with more detail. It will almost certainly be more expensive and time consuming, particularly in the first year. After that, your total compliance costs should stabilise at a lower level. 

And although it’s necessary, there are advantages to adopting the XRB PBE standards. They are designed to allow for transparency and consistency between reporting of different entities. And of course, you’ll remain compliant, which is the biggest benefit. Failing to comply could result in unfavourable audit opinions, potential penalties, and negative reputational impacts to your society or its officers. 

Once you have got this system in place, it should be relatively smooth sailing in the years ahead, and your organisation can focus on its positive work and its purpose.