Changes coming for Incorporated Societies
The Ministry of Business, Innovation and Employment (MBIE) have announced that they will pursue changes around the law governing incorporated societies. We can expect to see this introduced to Parliament in the 2020 year.
The current Act dates from 1908 so it is fair to say that there is room for improvement. It covers forming and dissolving an incorporated society but only offers very limited advice on the reporting requirements that are required. ‘Reporting’ is an accounting term used to describe the preparation of annual accounts. There are very few requirements around governance.
Charities already need to comply with reporting standards published by the External Reporting Board (XRB). These organisations have donee status under the Income Tax Act 1997. Most charities registered with Charities Services are eligible for donee status.
MBIE is proposing extending some of those rules to those incorporated societies that are not charities. There are currently around 23,000 Incorporated Societies in New Zealand.
Which Incorporated Societies will be affected?
Those Incorporated Societies that are not charities will be required to use the XRB standards if they meet the following criteria:
- Assets of $30,000.00 or more; and
- Annual payments of $10,000.00 or more.
As the Bill has yet to be introduced to Parliament, these are still proposals at this stage. Cabinet has signed off the proposed changes and the bill was originally intended to be introduced to Parliament in 2019. This is now likely to occur in 2020.
So what is likely to change?
There are a number of proposed changes.
Criminal Sanctions
There are several criminal sanctions that are aimed to dissuade individuals from “egregious conduct” such as:
- Dishonestly using a position as an officer of the society for personal gain;
- Causing loss to any person; and
- Fraudulently using or destroying the Society’s property.
Financial Statements (Annual Accounts)
The proposed bill will require Incorporated Societies to produce annual accounts within six months of their balance date.
For those Incorporated Societies affected by the legislation, they will need to adopt XRB standards (see above).
For those that fall below the thresholds, they will still be permitted to produce annual accounts on the same basis as the 1908 Act.
Audit
Incorporated Societies that are not registered as Charities through Charity Services will have to undergo an audit of their accounts if:
- Annual expenditure exceeds $2 million dollars; or
- Assets are worth in excess of $4 million dollars.
As such, most Incorporated Societies in New Zealand will not require auditing.
How long would an Incorporated Society have to comply?
It’s proposed that Incorporated Societies would have two and a half years to comply with all the requirements from the date the Bill becomes an Act.
Incorporated Societies would be deregistered if they did not comply within this timeframe.
Our View
In our view, the proposal makes good sense. Charities have for some time needed to comply with a greater level of accountability and reporting under the Charities Act 2005. This Bill would bring the 75% of Incorporated Societies that are not charities into line and give members much more confidence that the Incorporated Societies are accounting for their income and expenditure. The government proposes to exempt very small Incorporated Societies as the costs involved in compliance with the Act would outweigh any obvious benefit.
Generate Accounting is a specialist in the area of Charities and Incorporated Societies. Please do not hesitate to contact us if you have a need to produce financial statements that will comply with the proposed changes. We act for Charities and Incorporated Societies throughout New Zealand.
We’ll aim to keep you updated with the progress of these changes on our blog.
