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

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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).

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