Feedback on the 2019 Charity Reporting Awards
The winners and highly commended in the New Zealand Charity Reporting Awards 2019
Published 5 June 2019
[ 5 minutes to read]
Now in its second year, the New Zealand Charity Reporting Awards, organised and hosted by Chartered Accountants Australia and New Zealand(external link) (CA ANZ), recognise and celebrate best practice examples of charity reporting. The 2019 award recipients were acknowledged and prizes presented at the evening dinner of the Future Prospects for Charity Law, Accounting and Regulation Conference on 11 April. A number of entrants have asked for individual feedback but, unfortunately, and due to the sheer number of entries, this is not possible. However, being one of the judges, what I can do is provide some general feedback on my observations.
Entries were judged on three criteria: (i) compliance with the standards; (ii) communication effectiveness and innovation; and (iii) overall presentation. Communication effectiveness is about clearly and concisely explaining the purpose, activities, structure, governance and management arrangements of the entity. Innovation relates to how that information is presented and doing so in an interesting way. Presentation considers whether the report, as a whole, is visually appealing and well laid out.
Generally, those who used colour and photos scored higher in overall presentation. Those who used different visual techniques to present their information, such as tables, diagrams and other graphical representations of data, tended to score higher in communication effectiveness and innovation. Easier said than done when it comes to qualitative information, but that is where innovation truly comes in. A wordy and text-heavy page can often be difficult to engage with; use plain English when telling your story and use good design principles, including white space, to help break up the text. It really is about quality not quantity.
At the moment only Tier 3 and 4 charities are required to report service performance information but, soon, Tier 1 and 2 charities will also be required to report this information. In anticipation of this we saw many charities voluntarily reporting on outcomes, outputs and impacts. This helps to communicate effectively and hence was marked accordingly. One stand out entry was ZEALANDIA [PDF, 2.8 MB], who chose to tell its value creation story using the Integrated Reporting Framework.
In the spirit of continuous improvement, the following are small areas that some charities could work on to score higher for compliance with standards.
1. Multiple reports
Many entrants submitted a report that was different from the one they had filed with Charities Services. Whilst there was no awards’ requirement that the reports be the same, it was assumed they would be. This was more prevalent in Tier 1 and 2, but it was not exclusive to these tiers.
In some cases a complete and glossy annual report was entered, but only the financial statements/performance report section of the annual report was filed. This means all the non-financial information in the ‘front half’ of the annual report is not on the public register. In other cases, a completely separate set of basic financial statements that had been prepared in Excel were filed, again missing the important narrative that tells the entity’s whole story.
The key message here is that if you go to the effort of preparing a beautiful annual report, this is what you should also file (so long as it contains full financial statements – see point 4 below). The one report serves multiple purposes and saves you time duplicating effort.
2. General vs special purpose financial reports and generally accepted accounting practice
Some reports purported to be special purpose financial reports (SPFR), despite complying with the applicable accounting standards issued by the External Reporting Board (XRB). All charities are required to prepare general purpose financial reports (GPFR), which means financial reports must be prepared in accordance with the applicable accounting standards issued by the XRB. So GPFR and XRB standards are synonymous.
In contrast, SPFR are not prepared in accordance with the accounting standards issued by the XRB. They are prepared in accordance with accounting policies that are agreed upon between the entity and specific users.
Where it gets a bit more complicated is with generally accepted accounting practice (GAAP). The standards for Tiers 1, 2 and 3 are GAAP (described as fair presentation frameworks) because they are based on accrual accounting. The Tier 4 standard is ‘non-GAAP’ (described as a compliance framework) because it uses cash accounting. This is particularly relevant if an entity’s founding documents make reference to financial statements being prepared in accordance with GAAP. This, in effect, precludes the entity from using the Tier 4 standard even if it otherwise meets the criteria to report under that tier.
In summary, all charity financial reports must be general purpose, be it GAAP or non-GAAP.
3. Basis of preparation
The standard(s) that had been applied in the preparation of the financial report was not always well articulated. It is not sufficient to simply assert compliance with GAAP as this could mean any one of Tier 1, 2 or 3 (as noted in point 2 above). The tier reported under, the applicable tier criteria, and the actual standard(s) applied by the entity need to be clearly stated. The PBE accounting standards framework, which most charities report under, consists of the following four tiers (subject to the requirements on moving between tiers):
|1||PBE Standards||Public accountability (1); or Expenses >$30m|
|2||PBE Standards Reduced Disclosure Regime||No public accountability; and Expenses ≤$30m|
|3||PBE SFR-A||No public accountability; and Expenses ≤$2m|
|4||PBE SFR-C||No public accountability; and Operating payments <$125k (2)|
(1) As defined in paragraphs 7—13 of Standard XRB A1 Application of the Accounting Standards Framework.
(2) For the two preceding accounting periods.
It is important that the basis of preparation tells readers which tier and standard(s) the charity has elected to report under and what makes it eligible to do so.
4. 'Extract' or summary financial statements
All charities are required to prepare full financial statements (and file them with Charities Services). Some charities did not enter a full set of financial statements, instead submitting an annual report containing only ‘extract’ or summary financial statements. Because these were not GPFRs, they did not comply with the applicable standards.
Ensure you prepare and file full financial statements, and if you do this, make sure these are the ones you enter.
5. XRB templates for Tiers 3 and 4
If you use the XRB templates as a base for your performance report, ensure you tailor them appropriately. It really is the small things that can improve the overall presentation, such as removing the red asterisks, deleting rows where this year’s and last year’s figures are zero and deleting tables and notes that are not applicable.
There is absolutely nothing wrong with using the XRB templates, and you can make them look more appealing.