I’ve had a number of questions lately regarding not-for-profits that are not required to complete PBE Tier 3 or 4 accounts as they are not registered charities (e.g. incorporated societies, charities incorporated under Charitable Trusts Act 1957 but not registered with charities commission, sports clubs etc.)
What standard should these be prepared under? Will the special purpose for-profit audit report work with these (without using the SPFR for FPE options)? I asked Bill Heritage for his feedback on this:
"There is no universal answer to this. Statute doesn’t prescribe any particular reporting framework (well, there is an extremely basic obligation on incorporated societies in section 23 of their Act), but many of these organisations have constitutions or rules that specify, say, gaap. In most cases this is now Tier 3. If there is nothing in the constitution they have great scope and can choose any reasonable set of accounting policies.
Those that do select their own policies may elect to follow SPFR, usually because their accountant has the formats already set up BUT SPFR is designed for for-profit entities so is not automatically suitable for a not-for-profit.
There is no “special purpose” framework as such. The organisation can elect to present a financial report that is for the special purpose of reporting to the members and adopt any set of policies that will sensibly do so; Any audit report for SPFR or other special purpose reporting will have to comply with ISA (NZ) 800. The ‘non-gaap’ template will work here. They can choose to present a general purpose report and, again, can select accounting policies to achieve that aim. If they do this the audit report should modify the emphasis of matter paragraph in the ‘non-gaap’ template, but I think it is otherwise satisfactory."
The template we have in Audit Assistant for this is SPFR for NFPs Audits (2016 updates).
I also asked Bill whether these kinds of entities can opt to use PBE Tier 3 or 4 even though not required to do so? His reply:
"Yes, of course they can voluntarily adopt T3 or T4. Or adapt them by, say, using T4 without the statement of service performance. "