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

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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).

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