New accounting standard improves non-financial reporting to help not-for-profits attract funding

23 June 2020

The purpose of annual reporting is to provide relevant information on the operations and activities of an organisation[1] to key stakeholders to make informed decisions. However, if you are involved in the not-for-profit sector, you’ll be acutely aware of the shortcomings of traditional annual reporting.

Traditionally, annual reporting for not-for-profit organisations has focused on financial information:

  • How much revenue an entity generated.
  • Whether a profit was made.
  • Levels of cash and working capital.

While these measures are useful and important to understand the financial health of an organisation, they don’t tell the full story of not-for-profit organisations.

PBE FRS 48 Service Performance Reporting

From 1 January 2021, a new accounting standard will be introduced in New Zealand called PBE FRS 48 Service Performance Reporting.

PBE FRS 48 Service Performance Reporting applies to all not-for-profit entities reporting in accordance with PBE Accounting Standards - Tiers 1 and 2 of the not-for-profit reporting structure. The new standard introduces broad concepts to guide entities in defining what service performance information is and how this should be reported in their annual reports.

Service Performance Reporting is the reporting of an entity’s service performance information. This is information about what the entity has done during the reporting period in working towards its broader aims and objectives, together with supporting contextual information[2].

This type of non-financial information is often more important in understanding the impact an organisation has had, and for funders who are making funding decisions, it provides useful information regarding accountability and decision-making.

Applying Service Performance Reporting

Consider two sporting organisations contesting a major funding contract to deliver a wide range of services to a population. Traditionally, annual reporting would focus on:

  • The value of their contract revenues.
  • The cost of providing their services.
  • Whether a profit was made.
  • Levels of resources to ensure sustainability of the organisation.

While this information is useful, it does not provide insight into the impact the two organisations have had on the population it seeks to service and a funder needs to understand how effective the organisations are at delivering their required services.

The two sporting organisations probably have non-financial measures they use internally, which they may even report on in their annual report. These non-financial measures are critical for funders who rely on this information, along with the financial statements, to make funding decisions.

Up until now, there has been no set framework to guide the reporting of this non-financial information, which means the two sets of non-financial information presented by the organisations are unlikely to be comparable. This makes it very difficult for the funder in this situation to differentiate between the effectiveness of the two entities.

With the new Service Performance Reporting standard, reported non-financial information will be relevant, understandable, comparable and verifiable.

What your organisation needs to do

The new Service Performance Reporting standard applies for periods beginning on or after 1 January 2022 and requires full comparatives on adoption.

The comparative period will be those periods beginning on or after 1 January 2021, which means entities have either started their comparative period already or are very fast approaching it.

To help you better understand the implications of the new accounting standard, Crowe has produced a report with detailed information on each of the major areas of the standard.

Download Report

To discuss the impact on your organisation and to get assistance with implementing the changes, please get in contact with the Findex team today.

[1] https://www.xrb.govt.nz/reporting-requirements/why-report/

[2] PBE FRS 48 Service Performance Information paragraph IN2