Two key documents on its website are:
1. The (sample) 2013 Annual Information Statement
2. The 2014 Annual Information Statement consultation paper
These forms are relevant for NZ because they give us an insight into what information our neighbour believes is necessary to regulate its charitable sector.
Here are five key differences which I think are worth highlighting between the Australian and NZ approaches:
1. 2013 is a transitional year
The 2013 Annual Information Statement does not ask for any financial information. This it largely due to timing pressures - in the middle of 2012 the Minister announced that financial information would not be requested in the first year, so that charities had time to get their accounting systems prepared.
As a result, all charities are asked to complete the same questions in 2013, whereas in 2014 medium and large charities will be asked to provide more information than small charities.
This also means the 2013 statement is pretty simple - there are 16 mandatory questions and 3 optional questions. However the results will still give a new insight into the sector. For example, when the 2013 annual information statements are filed (most are due by 31 December 2013) we will know:
- Which Australian charities fall into the small, medium and large categories (based on whether their revenue is below, between or above $250,000 and $1m)
- What their purposes, activities and beneficiaries are
- Who are basic religious charities (see "exemptions", below)
- How they pursued their purposes in 2013 and what changes are expected in 2014
- The number of paid staff and unpaid volunteers
- Where they operate - both in terms of the eight Australian states and territories, and overseas countries.
The three optional questions are focused on 'red tape reduction' - one of the prime objectives of the Australian regulator (see "red tape reduction" below).
2. 2014 Annual Information Statement financial information
The Australian regulator announced it is only consulting on what financial information should be collected in 2014, so until May/June this year we won't know for sure what their final decision will be.
However, here are some of the more striking differences (and similarities) between the Australian financial information proposals and the financial information NZ currently collects:
- Small charities provide less financial information: In Australia, small charities will provide significantly less financial information than medium and large charities. Based on the current proposals, small charities will provide up to a maximum of 12 financial data elements, compared to a maximum of 31 for medium and large charities. In NZ, all charities are asked to provide the same - approximately 30 - financial data elements.
- Business activities: Unlike NZ, Australia has not separated out revenue and expenses from business activities. However it has asked all charities if they conduct business activities and, if so, the nature of those business activities.
- Audit/review details: Australia's register will show whether its medium charities have had an audit or a review (they can elect to have either) and for both medium and large charities it will show if the audit/review report was modified and, if so, the reason for that modification. None of this information is captured on the NZ register.
- Related party transactions: Australia's register will show whether the medium and large charities had related party transactions, as defined by Australian Accounting Standards Board standard 124 Related Party Transactions. The NZ regulator does not capture this information.
- Other Australian additions: For its medium and large charities, Australia has more information about government grants, salary sacrifice information, net realised and unrealised gains and losses, more loan information, and the amount of asset revaluation reserve within accumulated funds.
- NZ's additional information: Apart from trading income/expenses, the main difference is that NZ asks charities to specify the % of income sent overseas. Australia does not ask any % questions, however like NZ it does ask all charities to state the amount of grants and donations made overseas. NZ also asks charities to estimate their volunteer hours during an average week, whereas Australia does not (although I admit this is not financial information...)
- Similar omissions: Neither country asks charities to quantify fundraising expenses, despite this being quite a hot topic for the sector.
3. Exemptions - Basic Religious Charities
Australia brought in plenty of GST exemptions compared to NZ so it's not surprising they have also created a cut-out within the charity sector. Charities which are defined as "basic religious charities" do not have to provide any financial information on the Annual Information Statement. Nor do they have to provide annual financial reports, or comply with governance standards. And the charities regulator is unable to remove any of their responsible persons as a compliance response.
The definition of basic religious charities is fairly complex and it is provided in the consultation documents. It's worth noting that basic religious charities can be small, medium or large, as long as they do not receive large amounts of government grants or tax relief through donation tax deductions (DGR status); they are not body corporates or incorporated associations; and they are solely focused on the advancement of religion (ie they cannot have any other charitable purposes that are more than incidental to the advancement of religion).
The most noteworthy aspect of today's announcement is that although basic religious charities are not required to provide annual financial reports under the legislation, the legislation does not prevent the regulator from asking for financial information in the annual information statement. So the decision not to ask them to provide financial information in the annual information statement is an operational decision of the Commissioner (which is clearly in line with the policy intent).
4. Annual financial reports
In NZ, all charities are asked to "attach a copy of the financial statements for your last financial year (they don't have to be audited)". There are no regulations that set out minimum annual financial reporting requirements. However, changes are underway with XRB, the national accounting standard setter, consulting on accounting standards for registered charities which will apply from 2015. In addition, the Ministry of Business, Innovation and Employment is currently consulting on auditing and assurance proposals for large and medium registered charities.
Australia is quite different. Although their accounting standard setter AASB has not developed any charity-specific accounting standards, the Australian Treasury has issued draft reporting regulations which require every medium and large charity (except for basic religious charities) to lodge annual financial reports along with their 2014 and future annual information statements. Based on the current draft regulations (which may change over the next few months), this means they must attach:
- a statement of profit and loss and other comprehensive income
- a statement of financial position
- a statement of changes in equity
- a statement of cash flows
- notes to the financial statements
- an auditor's report (large) or a reviewer's report (medium)
- the responsible entity's declaration about the financial statements and notes - ie that they satisfy the requirements of the Act and that the charity is not insolvent and can pay all of its debts as and when they fall due.
These reports must also comply with accounting standards (although there is still debate about which standards are mandatory for charities which file special purpose financial statements).
In conclusion, although the Australian approach towards annual financial reports looks far more robust than NZ, don't forget that Australia only requires annual financial reports to be lodged by its large and medium sized charities (whereas NZ requires all registered charities to lodge financial statements). That means for the 78% (or over 40,000) Australian charities categorised as small charities, no annual financial reports will be provided.
5. Red tape reduction
Last, but not least, the Australian regulator has, as one of its three purposes,
" to promote the reduction of unnecessary regulatory obligations on the Australian not-for-profit sector."
This means the Australian regulator has more of a balancing act than the NZ regulator. It cannot ask for just any information in its annual information statement. Instead, it must ensure that the information it asks for will be used for its own assessment activity, will help maintain, protect and enhance public trust and confidence, and will demonstrate its commitment to red tape reduction.
It may be a hard sell for any regulator to ask a sector to provide information it has never provided to the government before, whilst at the same time convincing that sector that by providing it, red tape is actually being reduced.
Time will tell - we'll know the answer when we see the 2014 annual information statement consultation feedback and the changes (if any) the regulator makes to its 2014 annual information statement proposals. Watch this space.
[Footnote: I am currently working with the Australian charities regulator, so I have been living and breathing the annual information statement details for some time. It's great to have the material out in the public arena for comment.]
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