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New Zealand

New Zealand issues 'simple format' standards

26 Nov 2013

The New Zealand External Reporting Board (XRB) and New Zealand Accounting Standards Board (NZASB) have released two new series of standards which provide a 'simple format reporting package' for eligible not-for-profit and public sector public benefit entities. The new standard series implement further parts of the revised New Zealand Accounting Standards Framework and provide eligible entities with either a simplified accrual basis of accounting, or guidance on how to report using the cash basis.

The simple format reporting packages are aimed at smaller entities, with eligibility determined as follows:

  • 'Tier 3' (accrual based standards) - This tier is eligible to be applied by not-for-profit or public sector public benefit entities that:
    • do not have 'public accountability' as defined - the definition is based on the International Accounting Standards Board definition, and also 'deems' certain entities to publicly accountable in the New Zealand context
    • have expenses less than or equal to NZ$2 million
  • 'Tier 4' (cash based standards) - Not for profit or public sector entities may elect to apply tier 4 when permitted to do so by legislation, i.e. when reporting does not require an entity to prepare financial reports in accordance with New Zealand GAAP, including using the cash basis of accounting. Specific categories of public sector entities are prescribed as being eligible, e.g. Reserves Boards and Administrating Bodies, and Provincial Patriotic Councils.

The 'tier 3' and 'tier 4' requirements are effectively elective in application, and entities can instead prepare financial reports in accordance with 'tier 1' or 'tier 2' requirements. In some cases, individual standards from these tiers can also be selectively applied even though the 'tier 3' requirements are otherwise being applied.

The various standards implementing the simplified reporting packages follow a similar approach in how the requirements under each tier are set out, and many of the requirements are common across the various categories. The table below outlines the requirements for each type at a high level:

ComponentAccrual basis ('Tier 3')Cash basis ('Tier 4')
Public sectorNot-for-profitPublic sectorNot-for-profit
Information about the entity and why it exists Yes Yes Yes Yes
Statement of service performance
(what the entity sought to achieve and what it did)
Optional unless required by legislation Yes Optional unless required by legislation Yes
Statement of financial performance Yes Yes - -
Statement of receipts and payments - - Yes Yes
Statement of financial position Yes Yes - -
Statement of resources and commitments - - - Yes
Statement of cash flows Yes Yes * *
Accounting policies Yes Yes Disclose that the cash basis has been used
Notes
(requirements vary by entity, examples of disclosures include related party transactions, significant events)
Yes Yes Yes Yes

* Effectively incorporated into the statement of receipts and payments as this is prepared on a cash basis and includes a reconciliation from opening to closing bank accounts and cash.

The 'Tier 3' accrual based standards also modify the underlying accounting principles applied by 'Tier 1' and 'Tier 2' entities (standards for these entities are based on International Financial Reporting Standards or International Public Sector Accounting Standards). For instance, the standards provide simplified guidance on when specific types of revenues should be recorded, e.g. certain fees and subscriptions are recorded as revenue when cash is received, donations and grants that do not have a 'use or return' condition attached are also recognised on a cash received basis, and significant donated assets are measured using readily obtainable values such as rateable values or government values and other donated assets are not recorded.

The simplified reporting packages are applicable to periods beginning 1 July 2014 for public sector entities, and periods beginning 1 April 2015 for not-for-profit entities, with early application permitted. However, the cash-based 'tier 4' standards have not yet been formally issued, as the NZASB can only make those standards once the New Zealand Financial Reporting Bill 2012 is enacted#.

# The standards were formally made on 12 December 2013 as the Financial Reporting Act 2013 had received Royal Assent and become law.

Click for access to the following on the XRB website:

New Zealand releases final proposals to implement its new Accounting Standards Framework

14 Nov 2013

The New Zealand Accounting Standards Board (NZASB) has released a fifth package of exposure drafts dealing with proposed accounting standards applying to not-for-profit public benefit entities. The exposure drafts propose enhancements to existing New Zealand Public Benefit Entity Accounting Standards (PBE Standards) to make them appropriate for the top two 'tiers' of not-for-profit entities.

The initial suite of PBE Standards were primarily developed to suit the financial reporting needs of public sector entities, and are largely based on International Public Sector Accounting Standards (IPSAS) issued by the International Public Sector Accounting Standards Board (IPSASB), although some IPSAS were not adopted in the New Zealand context and some additional requirements based on New Zealand equivalents to International Financial Reporting Standards were included. However, a number of changed to terminology and examples were made to make them appropriate for both public sector and not-for-profit entities were included in the PBE Standards.

The proposals outlined in the exposure drafts follow NZASB consultation with not-for-profit sector constituents, and identify further not-for-profit enhancements designed to make PBE Standards fully applicable and understandable in the context of not-for-profit entity financial reporting. These include:

  • changes to, or supplements to, existing language and examples throughout the standards, e.g. providing guidance on the nature of 'management' and referring to common not-for-profit concepts such as donations
  • the inclusion of additional illustrative examples where considered appropriate, e.g. illustrative financial statements for a charitable organisation and an illustrative example of a cash flow statement for a not-for-profit entity
  • addressing the need for information about related party transactions, requiring all related party transactions, including those on normal terms and conditions, to be disclosed by not-for-profit entities
  • providing additional guidance on assessing 'control' within the not-for-profit sector
  • addressing the recognition of revenue from non-exchange transactions
  • concessions designed to reduce the costs of transition to the enhanced PBE Standards

Under the New Zealand Accounting Standards Framework, the applicability of accounting standards is determined both by the type of the entity (for-profit, not-for-profit, public sector) and a 'tiered' structure that reflects the nature of the entity, which in the case of not-for-profit entities relies on whether the entity is 'publicly accountable' and/or 'large' (by reference to its level of expenses). Entities meeting these criteria ('tier 1' entities) will be required to fully comply with the enhanced PBE Standards, whereas entities falling into 'tier 2' will be afforded disclosure concessions, but otherwise will comply with recognition and measurement requirements. A further two 'tiers' are proposed in the overall Accounting Standards Framework would permit the use of 'simple format reporting' either on an accruals ('tier 3') or cash basis ('tier 4), depending on further eligibility criteria.

The exposure draft package also includes amendments to the PBE Framework, two proposed standards dealing with transition to the new standards, and two draft explanatory guides that propose additional non-mandatory guidance on applying the proposed enhanced PBE Standards by not-for-profit entities (application of the 'reporting entity' concept, and the identification of relationships for financial reporting purposes).

New Zealand not-for-profit entities currently apply a range of financial reporting standards and might currently report in accordance with 'full' NZ IFRS (which have additional paragraphs applicable to public benefit entities), apply New Zealand's differential reporting concessions under NZ IFRS, or use some other accounting policies under their governing legislation or other directives. The New Zealand External Reporting Board (XRB) and NZASB are also currently consulting on a number of related and consequential amendments to various pronouncements arising from the New Zealand Financial Reporting Bill 2012 and Financial Markets Conduct Act 2013, which are expected to be finalised and issued early in 2014.

The exposure drafts close for comment on 2 May 2014 and it is expected the new requirements will be applicable for annual periods beginning on or after 1 April 2015. Click for press release (link to XRB website).

New Zealand provides more clarity around standard setting for 'public benefit entities'

16 Oct 2013

The New Zealand External Reporting Board (XRB) has released a new policy paper that provides a 'development principle' as to how standards should be set for the public benefit entities (PBEs) including public sector entities and not for profit entities. The paper builds on the existing guidance in the New Zealand Accounting Standards Framework and outlines more detail about how competing developments will be considered in setting so-called 'PBE Standards', which are primarily based on International Public Sector Accounting Standards (IPSAS).

The New Zealand Accounting Standards Framework requires that PBE Standards are developed using IPSAS as their base, but with modification of recognition, measurement and disclosure matters considered inappropriate in the New Zealand context (with such modifications expected to be relatively few). Requirements covering specific New Zealand needs and modifications for not-for-profit entities are also permitted. Accordingly, the initial release of PBE Standards were developed using a range of source standards:: IPSAS, selected NZ IFRSs (equivalent to IFRS) and domestic standards developed within New Zealand. The Policy Paper, Policy Approach to Developing the Suite of PBE Standards seeks to deal with how developments arising from each of these sources are responded to by the New Zealand Accounting Standards Board (NZASB).

The development principle contained in the policy paper sets out the primary purpose of developing PBE Standards is to meet the needs of PBE user groups as a whole. Accordingly, the principle seeks to ensure possible changes result in higher quality financial reporting, that benefits outweigh costs, and that possible responses of the International Public Sector Accounting Standards Board (IPSASB) to new and amended International Financial Reporting Standards is considered.

In applying the development principle, the paper outlines a number of 'rebuttable presumptions' to aid in its application:

  • A new or amended IPSAS will be adopted as a PBE Standard, after any amendments necessary such as to include guidance for not-for-profit entities, maintain the coherence of the suite of PBE Standards, exclude options that are not relevant in the New Zealand context, or respond to New Zealand legislative requirements
  • Standards issued by the IASB on new topics will not be included in the PBE Standards unless the IPSASB addresses the issue
  • If NZ IFRS standards are changed and an equivalent PBE Standard based on IPSAS exists, the development principle factors will be considered, with particular emphasis on the IPSASB's likely response to the change
  • Minor amendments to NZ IFRS will not be incorporated into the equivalent PBE Standard in advance of the IPSASB considering the change.

The policy paper acknowledges that "New Zealand will be a standards-taker rather than a standards-maker whenever possible" due to the quality derived by international due process, the need for international comparability and the limited resources available to the NZASB to pursue the development of domestic PBE Standards. Accordingly, the policy paper suggests that domestic PBE Standards would only be developed where they result in a material improvement in the information available to users, there is no other source of international material, or international guidance is not specifically targeted toward New Zealand issues.

The paper also discusses the vexed issue of so-called 'mixed groups' which include both PBEs and for-profit entities:

At times, there is a tension between reducing the costs borne by preparers within mixed groups – that is the elimination of differences between PBE Standards and NZ IFRS that are not sector-specific – and improving the suite of PBE Standards taken as a whole. This policy takes the view that reducing the costs on preparers within mixed groups should be considered to the extent that these costs can be reduced whilst meeting the needs of the wider range of users of financial statements of public sector PBEs and not-for profit entities (including public sector and not-for-profit groups) through a complete and coherent suite of PBE Standards.

The policy paper is effective from 1 October 2013. Click for access to the policy paper (link to the XRB website).

New Zealand to adopt investment entities amendments

10 Dec 2012

The New Zealand Accounting Standards Board (NZASB) has agreed, in principle, to approve for issue in New Zealand the 'Investment Entities' amendments for application by for-profit entities.

The in-principle decision was made at a recent NZASB meeting in Wellington held on 5 December 2012.

Consistent with its initial consideration of the issue and the Australia-New Zealand harmonisation objective, the NZASB will consider at its next meeting the proposed additional disclosures that are to be considered by the Australian Accounting Standards Board (AASB) at its meeting on 12-13 December 2012.

The NZASB also agreed that the investment entity amendments would not be made available for application by public benefit entities (PBEs, essentially not-for-profit entities), because the issue addressed in the amendments was unlikely to be relevant to the PBE sector.

Click for NZASB communiqué (link to New Zealand External Reporting Board [XRB] website).

Note: The NZASB subsequently announced the publication of the amendments in a further email communiqué dated 20 December 2012.  The amendments are available on the XRB website.

New Zealand exposure drafts issued to begin implmentation of new accounting framework

27 Apr 2012

The New Zealand External Reporting Board (XRB) and the New Zealand Accounting Standards Board (NZASB) have issued four Exposure Drafts (EDs) together with accompanying Invitations to Comment relating to the new Accounting Standards Framework for for-profit entities.

The exposure drafts are the first stage for the roll-out of the new accounting standards framework established by the XRB Board and recently approved by the New Zealand Minister of Commerce. Under that roll-out, the for-profit aspects of the new accounting standards framework will be effective before the public sector aspects, which in turn will be effective before the not-for-profit sector aspects.

Under New Zealand standard-setting arrangements, External Reporting Board Standard A1 Accounting Standards Framework (XRB A1) establishes which entities comply with which standards.

The XRB proposes to rewrite XRB A1 in a number of stages:

  • Stage 1, which is proposed to be effective from 1 November 2012, reflects the new for-profit framework while retaining the existing public benefit entity (PBE) framework
  • Stage 2, which is proposed to be effective from 1 July 2015, will reflect the new for-profit framework and the new PBE framework as it applies to public sector entities, while retaining the existing framework for not-for-profit entities
  • Stage 3, which is proposed to be effective from 1 March 2016, will reflect the new framework as it applies to all entities required to prepare general purpose financial reports (GPFR), including not-for-profit entities.

In addition, the NZASB has issued three exposure drafts which give effect to the change in framework, and contain proposals for the accounting standards that will apply to 'Tier 1' and 'Tier 2' for-profit entities (NZ IFRS and NZ IFRS RDR respectively).

Submissions on the four Exposure Drafts close on Friday 3 August 2012.

Click for:

New Zealand minister approves new accounting standards framework

03 Apr 2012

The Minister of Commerce, Hon Craig Foss, has approved the New Zealand Accounting Standards Framework (incorporating the Draft Tier Strategy) submitted by the New Zealand External Reporting Board (XRB).

The Minister's approval of the Accounting Standards Framework is a significant milestone in the establishment of the new financial reporting arrangements in New Zealand.

The XRB has a statutory obligation to now implement the strategy and will proceed to do so. through the issue of various exposure drafts.

Click for XRB press release (link to XRB website)

New Zealand XRB proposed Accounting Standards Framework

19 Mar 2012

The New Zealand External Reporting Board (XRB) has released a communiqué summarising the main matters considered at its meeting held on 13 March 2012, including the Board's decisions about the new Accounting Standards Framework.

The XRB considered responses to its consultation document issued during 2011 (see our earlier story) regarding a new Accounting Standards Framework for for-profit, not-for-profit and public sector entities.

Set out below is a summary of the decisions made in relation to the Accounting Standards Framework at the meeting:

 

For-profit entities

TierAccountingEntities
Tier 1 Full NZ IFRS, equivalent to IFRS Entities that are publicly accountable (as defined) and for-profit public sector entities that are large (as defined)
Tier 2 NZ IFRS 'Reduced Disclosure Requirements' (RDR). No recognition and measurement concessions compared to Tier 1, but with reduced disclosure. Entities that are not publicly accountable (as defined) and for-profit public sector entities that are not large, which elect to be in Tier 2.
Tier 3 NZ IFRS Differential Reporting Entities that are not publicly accountable (as defined) and either (a) all of its owners are members of the entity's governing body, or (b) are not large (as defined) which elect to be in Tier 3*
Tier 4 Old New Zealand GAAP (SSAPs and FRSs) Entities that are not publicly accountable, are not required to file financial statements, and are not large (as defined) and which elect to be in Tier 4*

* The criteria for, and reporting requirements for, Tiers 3 and 4 will reflect the status quo for entities currently using NZ IFRS differential reporting or Old GAAP (SSAPs and FRSs). These will be transitional tiers which will be removed when proposed legislative changes come into force. Those legislative changes will remove the statutory requirement from most small and medium sized companies to prepare financial statements in accordance with GAAP.

These arrangements are expected to be effective as soon as the NZ IFRS RDR standards can be exposed and then finalised (expected to be September/October 2012), with immediate adoption allowed.

 

Public benefit entities

TierAccountingEntities
Tier 1 Full PBE Accounting Standards (PAS) Entities that are publicly accountable (as defined) plus entities that are large (as defined)
Tier 2 PBE Accounting Standards Reduced Disclosure Regime (PAS RDR) Entities that are not publicly accountable (as defined) and entities that are not large (as defined) and which elect to be in Tier 2
Tier 3 PBE Simple Format Reporting Standard - Accrual (PSFR-A): Entities that are not publicly accountable (as defined) and which have expenses <$2 million and which elect to be in Tier 3
Tier 4 PBE Simple Format Reporting Standard - Cash (PSFR-C) Entities allowed by law to use cash accounting and which elect to be in Tier 4

The above framework is expected to apply as follows:

  • Public sector entities — periods beginning on or after 1 July 2014, with early adoption not allowed.
  • Not-for-profit entities — periods beginning on or after 1 April 2015, with early adoption allowed.

 

Click for more information (link to XRB website).

New Zealand Institute of Chartered Accountants calls for views on SME reporting

01 Mar 2012

The New Zealand Institute of Chartered Accountants (NZICA) has launch a survey to help determine the future of financial reporting requirements for New Zealand small and medium sized entities (SMEs).

Changes to New Zealand law expected to be enacted by mid-2013 would exempt for-profit entities that are neither issuers nor large (less than NZ$30 million revenue and less than NZ$60 million assets) from preparing general purpose financial reports (GPFR). In response to the proposed changes, the NZICA has established a Special Purpose Financial Statement Working Group in order to provide feedback to NZICA as it develops financial reporting guidelines for for-profit entities SMEs.

The guidelines will put forward a suggested financial reporting framework for SMEs to respond to the demands of specific external users of financial information. As the NZICA is no longer a standard-setter, there is no current intention to write a stand-alone suite of SME financial reporting standards or to make the framework mandatory.

Instead, the guidelines are proposed to include:

  • a simple language forepart that is organised to reflect how SMEs operate and provides core reporting recommendations supplemented by diagrams to assist preparers in reaching clear outcomes
  • appendices that provide linkage to the GPFR framework by using NZ IFRS as a reference for specific areas in order to avoid unnecessary duplication
  • industry-based model financial statements.

NZICA is seeking the views on the overall approach taken on the framework initially through the survey. More information and links to the survey can be found on the NZICA website.

Deloitte New Zealand welcomes New Zealand Government's refocus on financial reporting

19 Sep 2011

Deloitte (New Zealand) has welcomed the New Zealand Government's recent initiative to make financial reporting more relevant and reduce the reporting requirements for small businesses.

New Zealand Commerce Minister Simon Power recently announced that small and medium-sized companies (with annual revenue of less than $30 million, and assets less than $60 million) will no longer have to provide financial statements in accordance with generally accepted accounting practice (GAAP) unless their owners require them to.

While there are winners and losers based on the proposals, the overall outcomes have a ring of common sense to them. Essentially they refocus the requirements for financial reporting on to the entities where these are needed most resulting in the cost/benefit equation being better met.

The Minister estimates that compliance costs for companies may reduce by NZ$90 million per year, but the extent of relief will not be clear until the IRD releases its proposals for financial reports required for tax purposes.

Conversely, registered charities which accept donations from the public will be required to report the results of their activities. The reporting requirements have been focused to recognise that for the vast majority of these entities, a form of simple format reporting will be sufficient rather than full GAAP financial statements.

Shortening the deadline for non-listed companies with reporting obligations will also ensure timelier financial reporting, with the deadline dropped from five months to three months. This will mean companies may have to change their year-end reporting processes in order to meet the challenge of the shorter deadline.

The External Reporting Board (XRB), which oversees reporting standards, proposes a multi-standards approach, with for-profit entities following a suite of standards based on International Financial Reporting Standards, and public benefit entities following a suite of standards based on International Public Sector Accounting Standards. This change should address the needs of the differing user groups of financial statements.

However, Deloitte (New Zealand) urges caution on extending the approach too far. It is vital that the XRB ensures modifications in New Zealand are limited to only those that are necessary to ensure ongoing international comparability.

It is anticipated that differing standards between for-profit entities and public benefit entities will add complexity for a small number of mixed groups where reporting obligations exist.

While some decisions are still to be made, in particular for incorporated societies and assurance requirements for registered charities, and there are some inconsistencies and some clarifications needed, these proposals are a good step forward for New Zealand reporting.

Changes from the 2009 discussion documents
  • Large privately owned companies (not overseas owned) will not be required to publicly file their financial statements, as previously confirmed by the Minister
  • The filing deadline for non-listed companies has dropped from five months to three months, which is also quicker than the four months proposed in 2009
  • The IRD has been tasked to develop minimum standards for the preparation of special purpose financial statements by companies that do not have reporting obligations
  • The thresholds for size have increased
    • For for-profit entities, earlier proposals considered existing guidance of $10m assets, $20m revenue and 50 employees as the basis for being "large". The threshold proposed is now $30m revenue or $60m assets so more entities may fall out of existing reporting requirements
    • For public benefit entities an expenditure threshold of $20m for public sector entities and $10m for not-for-profit entities was initially proposed. The revised proposals have increased this to $30m expenditure to be considered large. The Minister notes that most not-for-profit entities will not be large and will therefore be able to take advantage of reduced disclosure concessions or simple format reporting
  • It is proposed that for-profit entities that fall into the second tier of reporting will follow a reduced disclosure regime harmonised with Australia. This will require the same measurement and recognition requirements as NZ IFRS with disclosure exemptions. This differs to current differential reporting in NZ IFRS and IFRS for SMEs which include recognition and measurement exemptions
  • Standards based on International Public Sector Accounting Standards (IPSAS) were considered in the 2009 discussion documents. Based on concerns expressed by submitters on the current status of IPSAS the XRB will not use pure IPSAS but will instead modify the standards as appropriate
  • Earlier discussion documents asked for feedback on whether a review engagement might be appropriate instead of an audit for public benefit entities This has not been included for public sector entities and the Minister has not yet released proposals on assurance requirements for registered charities
  • Incorporated societies and charitable trusts that are not registered charities are not currently included in the proposals. The Minister notes that the Law Commission is currently reviewing the Incorporated Societies Act 1908 so financial reporting issues will be determined once this review is completed.

Deloitte New Zealand has summarised the proposals in the following publications:

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.