Financial reporting and control relationships

Note: The definition of control outlined in the reporting standards has changed since this resource was written, so information on this page is out of date. We are currently working on updating the information on this page, as the new definition applies to reporting periods beginning on or after 1 January 2019.

Financial reporting needs to tell a story about what you do, the resources used in doing it, and how well positioned you are to continue doing it. To tell this story, you may need to consider whether you have control relationships with other organisations. If you have control relationships, this could affect the story that needs to be told, and the reporting tier that your charity is eligible to use. 

Some charities set up separate organisations to carry out their different activities. For example, a charity might establish a separate trust to manage its properties and investments, or establish an incorporated society to run a second-hand shop that provides income for the charity. In these situations, the charity is likely to have a control relationship with the trust or incorporated society – if so, the charity may need to include information about them in its reports. 

How can this affect the reporting tier?

If a registered charity has control relationships with other organisations, these organisations are considered part of the charity’s reporting entity. The size of this reporting entity is what determines the tier to be used rather than the size of the individual members. 

In such cases, the combined expenditure of the charity and the organisation/s they have a control relationship with, could mean that the charity is required to report in a higher tier. The combined expenditure does not include transactions between the organisations within the reporting entity. For example, a charity’s annual expenses are $1.5 million (thereby qualifying for Tier 3), the annual expenses of a separate organisation they control are $1 million, and they calculate the expense transactions between the two organisations were $300,000. The combined expenditure of the reporting entity would be $2.2 million and it would therefore be required to report in Tier 2.

Charities in this situation will need to include information about these organisations in their performance reports by providing consolidated financial statements and submitting these consolidated financial statements to Charities Services together with their annual returns. 

Tier 4 charities should carefully consider their control relationships. Where a reporting entity contains several Tier 4 charities but the combined expenditure is over $140,000 they will need to prepare their performance report under Tier 3. This would involve consolidation and a shift from the cash based accounting of Tier 4 to the accrual system of Tier 3.

Reporting entities which still meet the requirements of Tier 4 do not need to prepare consolidated financial statements. However, as part of the requirements of the Tier 4 Standard, a Tier 4 charity would need to describe its structure in the performance report, including the nature of any control relationships it has.

Any Tier 4 registered charity or reporting entity can choose to report using the Tier 3 Standard and prepare consolidated financial statements if they wish. 

What are consolidated financial statements?

Consolidated financial statements present information about a charity and the organisations it controls as one single entity (i.e. the reporting entity). The charity combines its assets, liabilities, equity, income, expenses and cash flows with those of any organisations it controls. Where charities also provide non-financial service performance information (such as its purpose, outcomes and outputs) this information is also combined in the consolidated statements.

What is control?

Control for financial reporting purposes is the power to govern the financial and operating policies of another organisation in order to benefit from its activities. There must generally be both power AND benefit for a control relationship to exist. The benefits can be both financial and non-financial in nature.

Some indicators of power and benefit are outlined in the table below.

Indicators of power

Indicators of benefit

The charity has the ability to:

  • veto, overrule or modify decisions of the organisation’s governing group
  • appoint or remove members from the organisation’s governing group
  • set or modify policy about how revenue is raised or how money is spent by the organisation, or
  • close or wind up the organisation. 

The charity benefits by:

  • receiving all or a portion of the organisation’s profits/surplus, or even being responsible for the organisation’s losses (negative benefit), or
  • the organisation provides goods or services which contribute to the charity’s objectives.



Note: If a charity is controlled by another registered charity, such as a national office, the charity is likely to have to provide financial information to the national office.

Determining whether charities have this control relationship can be complex. It involves an exercise of judgement, after considering the definition of control and the nature of the relationships between the organisations concerned. Control of an organisation can be attained in a variety of ways, and the underlying circumstances will vary. 

Examples of a control relationship

Scenario one

A registered charity sets up a separate organisation called Blue River. The purpose of Blue River is to reduce the pollution of local streams and rivers. Blue River is set up as a charitable trust, which keeps the finances and management separate from that of the charity. The Blue River governing board is made up of members of the community and members of the charity. The charity appoints the Chair and is also able to veto any person nominated for the Blue River’s governing board.

The charity’s ability to appoint the Chair and to veto, is an indicator of power. The charity benefits by achieving some of its objectives through the reduction of pollution of local streams and rivers. This indicates that the charity has a control relationship with Blue River.

Scenario two

The head body of a religious organisation is a registered charity. The charity is responsible for the governing document of the church. This document sets out a number of matters, including the basis of the faith, the mission and objectives of the church, the structure of the church (which includes regional bodies and local parishes) and how the local parishes must use any funds received. The head body can dissolve a local parish in certain circumstances, and close a parish in consultation with the congregation. If a parish is dissolved or closed, any assets transfer to the head office.

The charity’s ability to set and amend the document containing the operating and financial policies of the church is an indication of power over the local parishes. The charity receives financial benefits from the local parishes as the governing document requires a portion of the funds received from the congregation to be provided to the head body. The charity also benefits from the parishes providing services to the congregation to achieve the overall objectives and mission of the church. These factors indicate that the head office has a control relationship with the parishes.

Do we submit the consolidated financial statements or the separate financial statements to Charities Services?

If your registered charity controls other entities, you should submit the consolidated financial statements or performance report to Charities Services, together with a completed annual return. If the entities that your registered charity controls are also registered under the Charities Act 2005, those charities (called controlled entities) are also required to submit their separate financial statements or performance reports with their annual returns. There is an exception where a charity is registered only as a “group” or where separately registered charities have also created a “group” registration.

To illustrate this, in the example above (scenario 2), if the head office of the religious organisation and all the parishes are separately registered under the Charities Act 2005:

  • the head office would submit consolidated financial statements AND
  • the parishes would each submit separate financial statements covering their own activities, balances etc.

More information

If you think you may have a control relationship with another organisation, refer to the standards and guidance material on the External Reporting Board’s website, link), to decide how this may affect your financial reporting.

Relevant documents include:

  • XRB A1: Application of the Accounting Standards Framework
  • PBE IPSAS 6 (NFP): Consolidated and separate financial statements,
  • PBE IPSAS 34 : Separate Financial Statements (effective for periods beginning after 1 Jan 2019)
  • PBE IPSAS 35: Consolidated Financial Statements (effective for periods beginning after 1 Jan 2019)
  • EG A8: The Reporting Entity, and
  • EG A9: Identifying Relationships for Financial Reporting Purposes.


Charities Services is not in a position to make an assessment about whether you are in a control relationship. You are best placed to do this, as you have a good understanding of your organisation, and the nature of any relationships you have with other organisations. You may want to seek professional advice, especially if your structure is complex.