Operating Payaments Defintion for New Accounting Standards

When the Financial Reporting Bill becomes law (by the end of the year),  clause 45 defines a “specified not-for-profit entity” as being, in respect of an accounting period if, in each of the 2 preceding accounting periods of the entity, the total operating payments of the entity are $125,000 or more.

The problem is that the current reporting standards do not define “operating payments”.

The XRB are proposing a new standard called XRB A2 which has just gone to the XRB Board for approval.  This is how they intend to define “operating payments” within the draft standard A2:

For the purpose of section 45 of the Financial Reporting Act 2013, total operating payments means the total amount of any payment (including grant payments), other than a capital payment, made by the entity during the accounting period.

For the purpose of the above paragraph, a capital payment is a payment during the accounting period for the purchase of a resource with an expected life greater than twelve months, to be owned or partly owned and used by the entity to support the entity’s activities or to provide services or products. Capital payments do not include payments for operating purposes or payments for resources to be passed to other entities.

In relation to the meaning of total operating payments, the XRB decided that this should be defined on a cash basis to minimise compliance costs.

Remember that if you are under $125,000 then you will use simple format reporting cash accounting.  If you are above $125,000 and less than $2,000,000 then you will use simple format reporting accrual accounting.

If we are able to establish a list of transactions that are Capital and Operating, we can provide better guidelines for Parishes and Synods and it would also mean that we can have a consistent base to work from.

  •  So, depreciation is out of the calculation…..
  • Is it ex GST or inclusive of GST?  I would say exclusive but the draft standard does not say so….
  • What about a payment that reduces a liability, like a loan payment, does that fit the definition?
  • Revaluations are not an operating payment so they are out.
  • Do what is the difference between a “grant” and “donation” for the purpose of the definition?
  • Payments from designated funds?

Thoughts please?

2 thoughts on “Operating Payaments Defintion for New Accounting Standards

  1. 1. I would say loan payment does not fit into the operating payment definition. However, we would need to see what is main purpose of obtaining a loan at the first place. If the purpose is acquiring an asset, the loan payment is out. BUT how about the treatment of interest element? Does it fit into the operating expenses? My point of view is that interest payment in relation to the purchase of an asset should be out and interest payment in relation to business operation should be included. For instance, interest on bank overdraft.

    2. I have attended a XRB seminar lately and they have introduced a new standard for revenue which explain the revenue recognition. You can refer it to Exchange Revenue (PBE IPSAS 9) and Non-Exchange revenue (PBE IPSAS 23). It is a very lengthy definition and it should be able to explain the difference between a grant and donation. The standards comes into effect for period beginning on or after 1/7/2014. See the link below.

    http://www.xrb.govt.nz/Site/Accounting_Standards/Current_Standards/Standards_for_Not-For_Profit_PBEs/Stds_for_Not-For-Profit_T1-4.aspx

    Cheers
    Jeremy

  2. Thanks for your comments Jeremy.

    The External Reporting Board have issued the new standard dealing with this now. It’s called Standard A2 and is called “Meaning of Specified Statutory Size Thresholds”. It applies to all Tiers, both for-profit and not-for-profit entities. That part of A2 that applies to taking to establish if you are under or over $125,000 is as follows:

    Financial Reporting Act 2013: “Specified not-for-profit entity” and the determination of “total operating payments”

    14. Section 46 of the Financial Reporting Act 2013 sets out the meaning of a “specified not-for-profit entity”. For the purposes of an enactment that refers to section 46, an entity is a specified not-for-profit entity in respect of an accounting period if, in each of the 2 preceding accounting periods of the entity, the total operating payments of the entity are $125,000 or more.

    15. For the purpose of section 46 of the Financial Reporting Act 2013, total operating payments means the total amount of any payment (including grant payments and income tax payments, where applicable), other than a capital payment, made by the entity during the accounting period.

    16. For the purpose of paragraph 15, a capital payment is a payment during the accounting period for the purchase of a resource with an expected life greater than twelve months, to be owned or partly owned and used by the entity to support the entity’s activities or to provide services or products. Capital payments do not include payments for operating purposes or payments for resources to be passed to other entities.

    Download the whole A2 standard from here:

    http://www.xrb.govt.nz/Site/Accounting_Standards/Current_Standards/Standards_for_Not-For_Profit_PBEs/Stds_for_Not-For-Profit_T1-4.aspx

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