One size does not fit all
By Craig Fisher - 31 May 2012
New Zealand’s financial reporting framework is about to undergo a radical makeover. The changes are significant for some organisations. It is therefore important your organisation is fully aware of what is changing and the implications. Craig Fisher reports.
Hopefully you are all remaining abreast of progress regarding
the fundamental changes in financial reporting legislation and the
standards framework in NZ. To make this easier for our clients
we have boiled down all the changes into a brief explanatory
document and diagram.
Download the diagram below (prints to
What is changing?
Who has to follow General Purpose Financial Reporting
The Government has announced its proposed reforms to the
statutory reporting framework and specified which entities will be
required by legislation to prepare annual financial statements
under GPFR. Under this reform the following types of entities will
be required by legislation to prepare GPFR:
- Publicly accountable entities
- Large entities
- For-profit: annual revenue > $30m, or assets > $60m
- For-profit (public sector): annual expenses > $30m
- Not-for-profit: annual expenses > $30m
- Entities with 10 or more shareholders
Different accounting standards for different
The External Reporting Board (XRB), the Government's accounting
and audit standard setter, has released the proposed accounting
standards that will apply to the different types of entities that
are required to prepare annual financial statements under
Rather than just having a single set of accounting standards
applicable to all; the proposed accounting standards framework
adopts a two sector (For-profit or Public Benefit Entities) four
tier structure with differing accounting standards applying to each
When will these changes happen?
The changes now have to be confirmed via the relevant
legislation being enacted. In addition, some of the proposed
accounting standards are new and still need to be developed.
The changes will therefore occur progressively over the next 3
years. The timing will differ depending on the type of
- For-profit entities: From 1 November 2012 with early adoption
- For-profit entities: Transitional tiers (3 and 4) will be
removed once the proposed legislative changes come into force
- Public sector PBEs: For periods beginning on or after 1 July
- Not-for-profit PBEs: For periods beginning on or after 1 April
Who will be affected?
Small and medium sized private companies
From July 2013 the majority of small and medium-sized private
companies, that are not raising money from the public, will no
longer have to prepare general purpose financial reports. This
means they do not need to follow all the accounting standards
unless they choose to. Instead they will only be required to
prepare special purpose financial reports to comply with their tax
The implications: A reduction in mandatory compliance and the
associated cost. The owner now has a choice to adopt the financial
reporting framework that will best meet their needs.
Large privately held companies
Those that are not raising debt or equity from the public
(issuers) will have a statutory requirement to prepare annual
financial statements in accordance with International Financial
Reporting Standards and have these audited unless they opt out via
a 95% majority vote. They will not have to file these for public
viewing. 'Large' is proposed to be defined as annual revenue
greater than $30m or total assets over $60m.
The implication: Possible changes to accounting policies where
different reporting exemptions have previously been adopted e.g.
Overseas Owned Companies
Overseas owned companies or overseas companies operating in New
Zealand have previously had to follow a different set of financial
reporting requirements to many of their locally owned
contemporaries. This difference has been removed along with audit
requirements for these companies. Instead their statutory reporting
requirements will essentially be the same as New Zealand owned and
The implication: Removal of some New Zealand statutory
Not-for-profit (NFP) entities
Large publically accountable NFP entities along with registered
charities will be required to prepare annual financial statements
in accordance with new PBE accounting standards. These
standards will differ depending upon the size of the NFP
entity. Some of these NFP entities will also have a statutory
requirement to be audited or be subject to a lesser level of
The implications: Many more NFP entities will have a statutory
requirement to prepare GPFR financial statements. This
increased compliance is designed to improve the accountability,
consistency and quality of financial reporting in the sector.
It is also proposed that in future many larger NFP entities will
also have a statutory audit or assurance requirement.
Any queries you may have regarding this can be directed to
the authors Craig
Fisher (09 367 1654) or Jason Stinchcombe (09 367
1658) for clarification, or to your Hayes Knight