In the final part of the BNZ non-profit series, BNZ Partner, Cherie Trewavas shares her insights on building the financial capabilities of Non-Profit Organisations.
Compliance is one of those words that sends a shiver down the spine of many people working in non-profit organisations.
Changes to the rules surrounding the reporting of financial accounts for non-profits came into effect on July 1, 2015.
These changes have only exemplified these feelings of dread; however, after a few deep breaths and a little time considering the changes, we can see that they can actually bring benefits.
First, charities are now required by law to follow External Reporting Board (XRB) standards. There are too many details to go into here, so if would like to see more, please visit the XRB website.
The changes themselves will generally hold non-profit organisations to a higher standard of financial reporting than what they have previously been required to do.
However, because of the way non-profits have been separated into four different tiers, these effects will be felt differently across the sector depending on the size of the operation.
Smaller entities may well find the accounting process is now easier than before.
You can find a good summation of the tiers and how the changes affect each on the RSM Hayes Audit website.
While the detail understandably goes into some depth, here are a few of the key points that the changes address:
Non-profits are unique
Businesses operating to make profit, quite obviously, have a different set of drivers and goals, so it makes sense to treat non-profit groups differently. Donations are, after all, a major source of income for most non-profits.
Non-profits are no longer treated in the same way as a profit-based business.
The new rules take into account the different motivating factors behind the income generation of a non-profit organisation and as such are now able to more accurately measure the success of a non-profit beyond mere financial terms.
Until now, the stakeholders of a non-profit have had little in the way of hard data on which funding decisions can be based.
This is because non-profits had no legal compulsion to generate the kind of financial information related to their operation that would enlighten the various donors, funders and other interested parties.
From this point of view, it may well increase the flow of funding simply because these external stakeholders have more transparency.
The new tier-based approach means small charities no longer have to produce the same level of financial reporting as large ones. The upshot of this is the cost of compliance does not exceed the benefits of a compliant financial reporting process.
Even though the thought of increased compliance requirements is not necessarily something we all look forward to, hopefully you can now see that these new rules are, in fact, as much about bringing new opportunities for success as anything.
If you have any questions about how BNZ can support your non-profit organisation call us on 0800-273916.
This above article is intended as a general discussion only, and is based on selective information which may not be suitable for your purposes. BNZ strongly recommends that recipients take independent legal, investment and financial advice prior to making any financial or investment decisions.
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