New Zealand issues 'simple format' standards

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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
(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.

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