In February 2013 the Ministry of Business, Innovation and Employment released a discussion paper entitled Auditing and Assurance for Large and Medium Registered Charities – Concrete Proposals.  This is the last in a series of papers put out by them addressing the question of audit and assurance requirements for registered charities in New Zealand.

The final concrete proposals basically mandate that the requirement to be audited or will be reviewed based on the operating expenditure of a registered charity.  It is proposed that there will effectively be three tiers of charities involved being:

  1. Registered charities that have operating expenditure of $1m or more for both of the last two financial years will be required to have their financial statements audited.  These are referred to as being “large”.
  2. Registered charities with operating expenditure of more than $400,000 but less than $1m for both of the last two financial years will be required to have their financial statements either subject to a review or an audit.  These will be referred to as “medium” sized registered charities.
  3. Charities with operating expenses for the last two years of less than $400,000 will not be required to be audited or reviewed.

The table below shows the number of charities with operating expenses above various thresholds.  What is particularly interesting however is that there are 955 charities with operating expenditure above $2m per annum in New Zealand.  That is a lot of charities to have that sized operating expenditure.

These rules will apply to all charities whether or not they receive funding through public donations or government contracts.  The reason for this is that it is considered that all charities are publically accountable because they receive an exemption from income tax.  The view is that the foregoing of tax revenue establishes a public accountability to tax payers and the general public and that accountability cannot be met for larger charities without some form of assurance.

The thresholds will be applied to each registered charity.  Some charities will for instance have multiple branches which may be separately registered as charities or be branches of an overarching registered charity.  The thresholds therefore apply to whichever entity or branch is registered with the Charities Commission.

Table 1:  Registered Charities
(as at 6 December 2012)

Operating Expenditure

Number of Charities

Percentage of Charities

All charities 25,109 100%
≥$50,000 10,125 40%
≥$100,000 7,298 29%
≥$200,000 4,944 20%
≥$300,000 3,844 15%
≥$400,000 3,149 13%
≥$500,000 2,702 11%
≥$750,000 1,961 8%
≥$1,000,000 1,556 6%
≥$200,000 955 4%

New accounting standards will apply to registered charities and are expected to come into force with effect from 2015.  This is also likely to be the date that the new audit requirements come into place as well.  It will also likely be an offence for a charity to not comply with the new accounting standards under the Financial Reporting Bill once enacted.

Greenpeace of New Zealand Incorporated

The Charities Commission has also been reviewing charities and registration applications for charities to determine whether they should lawfully be allowed to register as charities within New Zealand.  The key point here is that charities which have amongst other purposes political purposes and ancillary political activities are not permitted to be charities under existing New Zealand Law.  There have already been several cases on this and Greenpeace is the latest in a string of these.

The Charities Commission is charged with determining whether charities that either registered or are applying for registration meet the relevant criteria.  The Charities Act itself doesn’t necessarily change the existing law which is well established and goes back to the decision Molloy v CIR regarding whether political purposes could indeed be charitable.

Without going into the details, Greenpeace was successful in the Court of Appeal and the matter has been referred back to the Department of Internal Affairs and the Charities Commission itself for review.  However, it does show that charities need to be very careful to ensure that they both initially comply with and continue to comply with these requirements.