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.

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:

• ED External Reporting Board Standard A1 Accounting Standards Framework (For-profit Entities Update)
• ED 2012-1 Framework: Tier 1 and Tier 2 For-profit Entities (NZ IFRSs)
• ED 2012-2 Framework: Tier 3 For-profit Entities (NZ IFRS Diff Rep)
• ED 2012-3 Framework: Public Benefit Entities (NZ IFRS PBE)

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)

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

* 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

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).

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.

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.

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

• Implications for for-profit entities (PDF 160k)
• Implications for public sector entities (PDF 153k)
• Implications for not-for-profit entities (PDF 158k).