Chapter 4.1: Financial reporting framework

4.1.1 Legal requirements

All public organisations (including public companies, incorporated societies, territorial authorities, government departments and schools) must produce annual financial reports. This allows the organisation’s owners and stakeholders to review their performance and to take action if they consider the performance to be inadequate.

Annual reports for schools serve the same purpose. They allow teachers, parents, students, Members of Parliament and the Minister of Education to review schools’ performance.

The legal requirements for schools to produce annual reports are contained in the Education Act 1989, the Crown Entities Act 2004 and the Financial Reporting Act 1993.

School boards of trustees must present audited annual financial statements for their school to the Secretary for Education by 31 May each year under s87C of the Education Act.

The Annual Report consists of two sections:

1. Management Report
2. Financial Report.

1. Management Report

Boards are required, as a minimum, to present an Analysis of Variance (see below) and a list of the members of the board.  They may also choose to provide additional information to the school community such as:

• Management report – this may be from the Chairperson and/or the Principal or can be a combined report.  It may be accompanied by a range of subsidiary reports, perhaps from different curriculum areas or from extra curricular activities, such as sport and music
• Analysis of Variance – this is a compulsory component of the report.  It is the opportunity for the board to demonstrate to the community and to the ministry how well it has achieved the targets it set itself in the school Charter – see Chapter 2.1
• Statement of Resources – an overview of the school and its facilities
• A list of all the board’s trustees (including the Principal) and the date on which each trustee goes out of office – this is a compulsory component of the report and must include all trustees who served at any time during the year, not just those who are members at the end of the year.

2. Financial Report

Boards are required to present all of the following reports (with exceptions as noted) in this section of their Annual Report:

• Statement of Responsibility – signed by the Chairperson and the Principal
• Statement of Accounting Policies
• Statement of Financial Position
• Statement of Movements in Equity
• Statement of Financial Performance
• Statement of Cash-flow (if applicable – compulsory only for non-differential reporting schools, usually large schools, but can be included if desired)
• Graphical Presentation (this is optional and can be omitted)
• Notes to the Financial Statements
• Statement of Contingencies
• Statement of Commitments
• A report on remuneration paid to the principal and cessation payments to trustees and employees
• Auditor’s Report.

The board of trustees can delegate the responsibility for preparing the financial statements, but the school Chairperson and Principal must sign a Statement of Responsibility that accompanies the financial statements – s87 (4).

back to top

4.1.2 IFRS reporting framework

Schools must prepare financial statements that comply with generally accepted accounting practice (known as GAAP and formalised under the New Zealand International Financial Reporting Standards - IFRS) because:

The ASRB has approved a suite of standards, referred to as NZ IFRS, which apply for all accounting years starting after 1 January 2007.

4.1.3 Differential reporting

The Financial Reporting Act 1993 and the Framework for Differential Reporting issued by the Institute of Chartered Accountants of New Zealand allow some exemptions for smaller entities when preparing their annual financial statements. For example, schools that qualify for differential reporting don’t need to prepare a Statement of Cash-flow.

To qualify for the exemptions allowed under the framework for differential reporting, schools must meet any two of the following three criteria:

• total revenue (including teacher salaries) is less than $20,000,000
• total assets of less than $10,000,000
• less than 50 full time equivalent paid employees.

If a board is in doubt whether or not it qualifies for differential reporting it should obtain an opinion from its accounting service provider, auditor or a Ministry of Education Financial Advisor.

Over 98% of schools qualify for differential reporting exemptions. The Kiwi Park School – Differential Reporting model can be used by most primary, intermediate, secondary and area schools. The reports have been prepared using certain exemptions available under the framework for differential reporting.

Kiwi Park School has two model financial statements – one for schools that qualify for differential reporting and one for schools that don’t. Some schools that may be considered ‘large’ still qualify for differential reporting exemptions.

4.1.4 Reporting entity

A ‘reporting entity’ is the organisation that is being reported upon in financial statements. Generally, the reporting entity for a school is the organisation governed by the board and the school Charter. However, there may be more complex cases, eg, a large school may have a trading enterprise, such as a farm.

The reporting entity must accurately describe the legal and accounting entity in the Statement of Financial Responsibility. Whether or not an activity forms part of the school reporting entity could determine a school’s eligibility for differential reporting.

back to top

4.1.5 Consolidation

Where the board of trustees has the capacity to influence the activities and financial and operating policies of an entity connected with the school (eg, the boarding hostel, the parents’ support group, activity centre, teen parent unit or trust), then the financial reporting of the entity must be incorporated into the school’s accounts.

It first needs to be determined whether the entity is an integral part of the school or a separate legal entity. Entities whose activities are an integral part of the school (such as a teen parent unit) would be accounted for as a separate activity within the school’s financial statements.

Separate legal entities, which are controlled by the board, are also public entities and must prepare their own financial statements, which are subject to audit in the same way as the school’s accounts.  Where the separate legal entity is material to the school, the school will have to prepare consolidated accounts incorporating the transactions of the separate entity.

The capacity to influence is defined in terms of control, eg, can the board control the financial and operating policies of another entity for the purpose of obtaining the benefits and/or assuming the risks normally associated with ownership.

• Use these questions to determine whether the board ‘controls’ a unit:
• Can the board influence appointing or removing people from the decision-making body of the unit?
• Can the board influence the distribution of the unit’s funds and assets?
• Can the board make decisions on behalf of the unit or veto any decisions made by the unit?
• Can the board dissolve the unit and obtain any of the unit’s funds and assets?

If the answer to these questions is yes, the unit is deemed to be a subsidiary of the board and its accounts must be consolidated with the school’s in the Annual Report.

If a board is in doubt about what comprises its reporting entity, it should obtain an opinion from its accounting service provider, auditor or a Ministry of Education Financial Advisor.

Consolidated financial statements are prepared by combining the financial statements of the separate entities on a line-by-line basis, ie, by adding together (after adjustments for inter-entity balances and transactions) corresponding items of assets and liabilities, revenue and expenses. It is recommended that a full set of accounts be presented for each entity as well as the consolidated accounts. A number of accounting software products enable separate sets of accounts to be kept and then consolidated at year-end. A spreadsheet to help combine information kept in different systems is available in the Resources chapter of this handbook.

If there is a unit associated with the school but not controlled by the board of trustees then keep that unit’s funds, assets and operations separate from the school and account for it separately.