Pitopito Kōrero

New Zealand adoption of a standard for audits of Less Complex Entities

We have issued a consultation document and an exposure draft of a proposed new auditing standard following the issue of the International Standard on Auditing for Audits of Financial Statements of Less Complex Entities (ISA for LCE) by the International Auditing and Assurance Standards Board. The ISA for LCE is a stand-alone auditing standard available for auditors to use when auditing less complex entities.  

The standard contains all requirements necessary to obtain reasonable assurance about whether the financial statements of a less complex entity are free from material misstatements.  

While the auditing standards (ISA (NZ)) are scalable, we have heard concerns that these standards are getting increasingly complex and written in the context of highly regulated, large, listed entities. In New Zealand, there are many less complex entities that have audits of financial statements, including charities and sports clubs, schools and early childhood centres. The ISA for LCE aims to address these concerns. Now that the ISA for LCE has been issued globally, we are consulting on whether it is suitable for New Zealand and if auditors would use this standard. 

Over the coming months we will be undertaking a variety of engagements to seek stakeholder feedback on the viability of adopting ISA for LCE in New Zealand. Submissions are due by 27 February 2025. 

Update on proposed 2024 amendments to Climate and Assurance standards

A sincere thank you to everyone who provided feedback on these proposals. We received over 100 written responses to our consultation (comment letters and survey responses, available to read on our website), as well as input from participants at our drop-in sessions or other direct engagement workshops and meetings. We appreciate your feedback, particularly given the short timeframe for the consultation. 

We are now actively working through the feedback, with the XRB Board aiming to make their decisions on these standards imminently. We will keep you informed via our newsletter and alerts about the outcome of the consultation.

Service Performance Reporting and Assurance

We have heard a number of challenges around the application of service performance reporting and its audit, particularly within the not-for-profit (NFP) sector. We are being proactive in addressing these challenges, recognizing that this area is new to many. The key concerns raised include a request for greater clarity in the requirements and related concepts, capability and capacity limitations in the NFP sector, and verification challenges, particularly regarding the cost and perceived value of the audit. 

In response to this feedback, we are developing project plans that explore potential changes to the XRB’s standards and are working on additional guidance to support both the preparation and assurance of the Statement of Service Performance.  

Proposed Improvements to the equity method of accounting

We understand that there are practical challenges in New Zealand around applying the equity method – i.e. accounting for investments in associates and joint ventures in consolidated financial statements. The International Accounting Standards Board (IASB) has released an Exposure Draft (ED) which proposes to amend and clarify the requirements of the equity method of accounting. The aim of the proposals is to address widespread and material application challenges and reduce diversity in practice. 

We have summarised these proposals here and we are seeking your feedback on these proposals. We are also interested to hear about any other practical challenges relating to the equity method and possible solutions to address these challenges.  

To provide feedback, please get in touch with us directly by emailing accounting@xrb.govt.nz or by completing the online form.

In brief

Updates

• Need to Know webinar – Assurance October Update Recording

Events

• IASB Vice Chair visit to New Zealand – 8 November:
  • IASB Work Programme - for Company Directors: 9am–10:30am 
  • IFRS 18 Insights - for CFOs and other senior finance staff: 2pm – 3:30pm
• Need to Know webinar – Accounting Update for Incorporated Societies: 14 November, 12:30pm – 1:10pm Register here

Current consultations

• Exposure Draft Equity Method of Accounting – Closes 20 November
• Intangible assets survey – Closes 30 November
  • Survey for investors
  • Survey for companies and other stakeholders