Service Performance Reporting
From 1 January 2021, Tier 1 and Tier 2 charities will need to include non-financial information alongside the financial statements they file with Charities Services. Together, the financial and non-financial information is referred to as a Financial Report. This is because the External Reporting Board (XRB) has issued a new financial reporting standard: Service Performance Reporting (PBE FRS 48) .
All Tier 1 and Tier 2 charities will be required to report service performance information. Unlike some other Tier 1 and 2 standards, there are no reduced disclosures allowed in the standard for Tier 2 entities. Preparers need to apply the principles in the standard when deciding how much information to report. This may be less or more depending on the size of the charity.
Although the standard only becomes a requirement from 2021, Tier 1 and 2 charities may begin applying it at any time. Even if not adopted early, thinking about the standard now will help a charity decide what information it needs to collect to meet the new requirements.
What is the purpose of this information?
The standard has been introduced because, as with Tier 3 and Tier 4 charities, non-financial information is important for accountability and decision making as well as telling the story of the charity. In some cases, the non-financial information may be considered to be more important than the financial results.
For these reasons the standard has been written to provide readers the information they need to get a full picture of what a charity has been able to achieve in the past year with the resources available to it.
What needs to be reported?
The Tier 1 and 2 Service Performance Reporting standard is less prescriptive than the Tier 3 and Tier 4 standards. Rather than specifically defining and referring to outcomes and outputs, the standard provides a set of principles to be used by a charity in deciding what should and should not be reported.
The standard does however guide charities to report information that answers questions similar to those found in the Tier 3 and 4 standards. The information must tell the reader:
- Why the charity exists, what it wants to achieve, and how it wants to do that in a general sense
- What the charity actually did during the year to move closer to these goals
Why does the charity exist?
The standard describes several places from which the information can be drawn, including the charity’s:
- Trust Deed
- Mission Statement (its vision and purpose)
- Planning and Strategic documents
Some of this information is also available to the public through the Charities Register and anything a charity reports should be consistent with this information.
Why a charity exists should have been answered prior to the formation of the charity. It is also a question that must be answered before a charity can be registered in New Zealand. It is important for charities to revisit their purpose regularly to ensure they are still on track, and to ensure their current activities still meet the definition of charitable purpose. For further information, see Charitable Purpose.
How does the charity achieve its goals?
The information reported will explain the main ways the charity is moving towards its long term goals. This could include:
- Delivering goods and services directly to individuals (eg. A homeless shelter)
- Contracting with other organisations to deliver goods and services on their behalf
- Making grants to other individuals or entities (eg. A charitable foundation)
- Working together with other entities that share common objectives (eg. A joint fundraising group).
Ultimately, both why a charity exists and how it operates provide context to the financial activities during the year. It will help the reader of the financial report assess the decisions made by the charity and whether they believe it has been effective in working towards its goals.
What did the charity do during the year?
The information reported here will depend on the charity and what it does. PBE FRS 48 is very flexible in what kind of information can be reported including:
- Quantitative Measures – For example, how much of something was provided or a change in a rating or score expressed as a number
- Qualitative Measures – For example, compliance with a best practice standard or a rating that is expressed in words
- Qualitative Descriptions – For example, testimonials by others or detailed observations made about the charity
There is no requirement to include any or all of these types of information. Instead a charity is encouraged to select a mix of information it believes is meaningful for readers of its financial statements. This also includes choosing the right amount of information to report. A charity should report enough information to understand what it has done overall but not so much that the reader is overwhelmed with detail.
Selecting the right things is important as all information reported should be relevant. It should provide the right information for a reader to understand the context in which to read the financial statements. It should also include a mix of both positive and negative factors such that it faithfully represents where the charity has succeeded and where it intends to improve.
The mix of information must also be selected with the abilities of the reader in mind. An average reader should be able to understand and verify the information. This is true when a reader understands the message of the information and any judgments or assumptions relating to it.
Another reason it is important to get this mix right at the start is that the information reported must be comparable over time. A reader should be able to use it to help them assess how a charity’s activities have changed. For example, reporting the amount of goods provided in one year and instead reporting written testimonials next year may not provide a clear picture of any changes. As a starting point for deciding on this mix of information a charity might ask itself:
- What did we plan to do? – per budget or other planning documents
- How well did we meet our plans? – comparison of actual activities to plan
- Why were there differences (if any)? – Explain what happened to make actual activities different than expected
How should service performance information be presented?
Tier 1 and 2 service performance information can be reported in whatever format a charity thinks is best. The information may include visual elements such as graphs and infographics. It may also cross-reference information in the financial statements or outside the performance report where this is helpful for the reader. The only requirement is that the information must be clearly identified in the financial report.