Understandability and Transparency of the Financial Statements of ...

The September 2009 review of New Zealand‟s financial reporting framework, raised the
importance of considering what is the most appropriate „assurance engagement‟.
NZICA‟s (2010) Explanatory Foreword to Engagement Standards in paragraph 12
defines an assurance engagement where a conclusion is expressed:
In the form of an opinion designed to enhance the degree of confidence of the
intended users other than the responsible party about the outcome of the
evaluation or measurement of a subject matter against criteria.
The Ministry of Economic Development (2009d) proposed that charities that are
publicly accountable, i.e. collect money from the public, should be required to complete
an assurance engagement unless their small size means that the assurance-related
benefits to users are likely to be outweighed by the costs of a review engagement. The
Accounting Standards Review Board‟s tentative proposal (Table 5-3) is that in order to
match costs and benefits Tiers 1 and 2 would be required to obtain an audit engagement,
but Tier 3 would be able to have a review (Accounting Standards Review Board, 2009).
Tiers Based Upon Operating Expenditure
Tier 1:
Quality assurance proposed
Expenditure ≥NZD10 million.
Tier 2:
Audit
Expenditure
million.
Tier 3:
NZD10 million but ≥NZD1 Audit
Expenditure NZD1 million but Review if expenditure ≥NZD100,000 and
≥NZD20,000.
Below Tier 3:
NZD1 million.
No audit or review if expenditure $100,000
Expenditure
NZD20,000
equal to or Less than No assurance required
Table 5-3 Levels of assurance (Cordery & Sinclair, 2009)
In England and Wales charities must be audited if either their gross income exceeds
GBP500,000 (i.e. NZD2.8 million) or their assets exceed GBP2.8 million (i.e. NZD5.7
million) (Charity Commission, 2008c). The Auditing Practices Board also offers
specific guidance for auditors of charities to aid them in their audit (Auditing Practices
Board, 2009).
In contrast, Australia does not have a prescribed level of auditing for charities. The
determination of whether an audit is required depends upon the legal structure of the
charity, the two main ones being incorporated associations and company limited by
guarantee. Incorporated associations are governed by the Associations Incorporation
Act in their state of incorporation and, except in the states of New South Wales and
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