CA ANZ has lodged a submission jointly with CPA Australia on MBIE’s consultation document on what regulations should be made under the Incorporated Societies Act 2022 (NZ) and what those regulations should prescribe. An Exposure Draft of the regulations will be consulted on in the first half of 2023 before they are made final around August or September 2023. Our feedback focused on matters relating to reporting and audit.
The consultation proposed a definition of ‘total current assets’ which is used to define a ‘small’ society – those that are not required to prepare financial statements in accordance with the XRB Standards. We recommend aligning this definition with paragraph 66 of NZ IAS 1 Presentation of Financial Statements.
We agree with not prescribing additional requirements for the financial statements of ‘small’ societies. Instead we recommend introducing a requirement for the annual return to contain some basic financial information. We recommend that the annual report is required to include any financial statements that are required to be prepared, and if those financial statements are required to be audited – the auditors’ report.
The consultation proposed an audit threshold of ‘total operating expenses’ of greater than $3m which would equate to about 1% of incorporated societies that are not registered charities. We recommend that the audit threshold be expenditure >$1.1m to align it with that of registered charities. This would mean that 2-3% of incorporated societies that are not registered charities would be required to have their financial statements audited. The research presented in the consultation shows that around 95% of societies with expenditure >$3m already have their financial statements audited or reviewed. We believe this lower audit threshold will not only provide consistent regulation across both incorporated societies and charities it will also better serve the statutory criteria of “the desirability of promoting confidence in the integrity of financial reporting of incorporated societies”.
We also note that the term ‘total operating expenditure’ is not defined. We recommend that this definition be aligned with section 42D of the Charities Act 2005 which is defined in Standard XRB A2 Meaning of Specified Statutory Size Thresholds.