The Incorporated Societies Bill is well on its way to being refreshed and brought into the modern governance and reporting framework 113 years after the current legislation was first enacted. Submissions have now closed with an expected report due by the Select Committee on 6 October 2021.
Overview of proposed changes
The proposed legislation once finalised and enacted will replace the Incorporated Societies Act 1908 through several key changes including:
- Changes in the number of members required to start and run the society, decreasing from 15 to 10 members.
- The concept of no financial gain being made by members has been expanded to include what is considered to be a financial gain and what does not have a financial gain purpose.
- All Societies must have compliant constitutions (rules), which has content that is more prescriptive under the new bill. The Constitution must not give members rights or interests in society’s property. The compliant Constitution (and any amendments thereto) must be registered with the Registrar of Incorporated Societies.
- More regulation around boards / committee members, governance requirements have changed and as such the new bill defines what is expected of a member in a governance role including dealing with conflicts of interest, personal liability, and the consequence of acting outside of the constitution.
- Provision of restructuring options, to recognise that it is sometimes in the best interest to amalgamate and restructure rather than to just liquidate a society.
- Annual returns becoming more detailed, along with the requirement to update the registrar on any changes to keep the registry information up to date.
- Assurance and FInancial Reporting requirements - see below for more details on these changes.
Among various other proposed changes.
Historically there has been no requirement for incorporated societies to obtain an audit or review of their financial reports.
Going forward it is expected that large societies that are not registered charities will need to have their accounts audited1 if one of the following apply:
- Annual expenditure is over $2 million
- Total assets are over $4 million
If you are heading towards these values, contact your local BDO Adviser for more information and support.
1 The Incorporated Societies Bill stated that every Society that is large within the meaning of Section 45 of the Financial Reporting Act 2013 (FRA) must ensure that the financial statements are audited by a qualified auditor. However, the Cabinet Paper titled ‘Reform of the Incorporated Societies Act 1908’ has proposed reducing the FRA audit threshold to correspond to ‘Tier 3’ not-for-profit thresholds used by the XRB.
For societies to which updated financial reporting and assurance requirements do not already apply e.g., those that report under the Charities Act 2005, the legislation has historically been to prepare financial reports but there has not been a prescribed standard or format to follow which has meant it is difficult to compare information presented by different societies.
The proposed act will require reporting using standards issued by the External Reporting Board (XRB) per the flow chart below if any of the questions on the left are answered with a yes:
If there is a requirement to prepare under the XRB standards, then tiered (size based) requirements for financial statements will apply which means determining which Tier the organisation falls under and the transition from special purpose financial reporting to XRB standards including any restatements of prior year amounts.
Your local BDO accounting and advisory services teams have extensive experience in preparing XRB compliant accounts and can be contacted for more information and support.
The financial reports must be prepared and registered by all societies to the Registrar within 6 months of balance date.
It is expected that once the bill becomes law there will be between eighteen months to two full financial years to make the necessary changes to transition to the new act including:
- Update to constitution / rules
- Ensuring all members are eligible under the new Act
- Re-registering under the new Act (this will not be an automatic transfer)
- Ensuring financial reporting systems and information are ready to report under the XRB standards (if applicable).
If you require any help in transitioning or would like to know more about the expected changes, please do not hesitate to contact your nearest BDO office.