Accounting Standards Framework

For-profit
Not-for-profit
Public Sector

The current New Zealand Accounting Standards Framework (the ASF) sets down a financial reporting strategy for New Zealand and establishes which suite of reporting standards and reporting tiers apply to which entities. It involves a multi-standards, multi-tiered approach.

Certain entities are required by law to prepare financial statements in accordance with accounting standards issued by the XRB (the “who” question).

The ASF and the resulting suite of XRB reporting standards then state what and how those entities must report (the “what” question).

The current ASF began back in early 2009 in conjunction with Government reforms that led to the enactment of the Financial Reporting Act 2013 and associated amendments to other legislation.

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The XRB has since conducted a targeted review of the ASF in the latter half of 2019.

Key objectives

The ASF has two key underlying objectives.

1. To meet user needs — by developing accounting standards that lead to high quality financial reporting that meets the different user needs in the for-profit and public benefit entity (PBE) sectors; and

2. To balance the costs and benefits of reporting — by establishing appropriate accounting requirements based on the nature and size of the entity

Key elements

The framework has three key elements.

Multi-standards approach	Different suites of accounting standards for two distinct sectors: for-profit entities and public benefit entities (PBEs)
Tiered approach	Different accounting requirements for each tier based on cost-benefit considerations: For-profit entities – 2 tiers PBEs – 4 tiers
Basis for developing each suite of accounting standards	For-profit entities — accounting standards are based on International Financial Reporting Standards (IFRS Standards). PBEs — accounting standards are based primarily on International Public Sector Accounting Standards (IPSAS) for Tiers 1 and 2 and the XRB’s Simple Format Reporting Requirements for Tiers 3 and 4.

Multi-standards approach

Different suites of accounting standards for two distinct sectors: for-profit entities and public benefit entities (PBEs)

Tiered approach

Different accounting requirements for each tier based on cost-benefit considerations:

For-profit entities – 2 tiers
PBEs – 4 tiers

Basis for developing each suite of accounting standards

For-profit entities — accounting standards are based on International Financial Reporting Standards (IFRS Standards).
PBEs — accounting standards are based primarily on International Public Sector Accounting Standards (IPSAS) for Tiers 1 and 2 and the XRB’s Simple Format Reporting Requirements for Tiers 3 and 4.

The table summaries the current accounting standards framework.

For-profit entities

Tier	Entity type	Standards
Tier 1	Has public accountability or is a large for-profit public sector entity with total expenses > $30million	NZ IFRS
Tier 2	Has no public accountability and is not a large for-profit public sector entity with total expenses ≤$30million and elects to be in Tier 2	NZ IFRS Reduced Disclosure Regime (NZ IFRS RDR)

Public Benefit entities (both Not-for-profit and Public Sector entities)

Tier	Entity type	Standards
Tier 1	Has public accountability or is a large PBE with total expenses > $30million	PBE Standards
Tier 2	Has no public accountability, is not large, has total expenses < $30million but > $2million, and that elects to be in Tier 2	PBE Standards Reduced Disclosure Regime (PBE Standards RDR)
Tier 3	Has no public accountability and has total expenses ≤ $2million, that elects to be in Tier 3	PBE Simple Format Reporting Standard - Accrual (SFR-A)
Tier 4	Has no public accountability and is allowed by law to use cash accounting, that elects to be in Tier 4.	PBE Simple Format Reporting Standard - Cash (SFR-C)

Overview of external financial reporting requirements

Along with its associated explanatory guides and additional material, the general standard XRB A1 provides a comprehensive overview of the external financial reporting requirements for both for-profit and public benefit entities (including not-for-profit entities).

XRB A1 and its associated documents listed below can assist you to identify the relevant tier and associated financial reporting requirements for your entity.

XRB A1 697 KB
EG A1 545 KB
Updated Accounting Standards Framework Dec 2015 391 KB

What is GAAP?

Accounting standards issued by the XRB Board or the NZASB and are the primary indicators of generally accepted accounting practices (GAAP) in New Zealand.

They set out the recognition, measurement, presentation and disclosure requirements for transactions and events that are important in the preparation of financial reports—including those that may arise in specific industries.

In general, entities with statutory reporting requirements must prepare financial reports based on GAAP.

XRB standards are widely accepted as appropriate to accounting practice and necessary in order that financial statements are meaningful, comparable and consistent across a wide variety of businesses and industries.

What is non-GAAP?

There are some exceptions to applying GAAP.

Certain enactments, such as the Charities Act 2005, permit an entity that does not meet the size threshold to be a “specified not-for-profit entity”. This enables the entity to prepare its financial statements in accordance with a “non-GAAP standard” issued by the XRB or NZASB. Small charities with total operating payments of less than $125,000 are one such case.

Only the Tier 4 PBE Accounting Requirements comprise non-GAAP standards.

Who’s included?

Various pieces of legislation require entities to prepare general purpose financial reports (GPFR) that comply with XRB standards.

Here are some examples:

“FMC reporting entities” under the Financial Markets Conduct Act 2013—such as issuers of securities, stocks and shares and including licensed insurers, registered banks, credit unions and building societies.
Large New Zealand and overseas companies or subsidiaries of overseas companies under the Companies Act 1993.
Registered charities (also referred to as Not-for-profit entities) under the Charities Act 2005.
State sector bodies under the Public Finance Act 1989 or the Crown Entities Act 2004.
Local bodies and council controlled organisations (CCOs) under the Local Government Act 2002.

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Who's excluded?

Most New Zealand-based for-profit small to medium-sized entities have no legal requirement to comply with XRB standards. The current framework no longer caters for small and medium-sized for-profit entities in its tier structure and the previous Tier 3 and Tier 4 for-profit standards have been withdrawn.

When the Government moved to reform the financial reporting framework, it decided that SMEs should continue to prepare financial reports for compliance purposes only, i.e. to a lesser and minimum special-purpose level.

This means SMEs will need to produce special purpose financial reports (SPFRs) for users such as a governance body, the Inland Revenue Department (IRD) or a lending institution, such as a bank.

Further help

Our Find your standard tool explains in more detail how to find the right sector and Tier for your entity and the standards it must apply.

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Background

The Accounting Standards Framework was first issued in April 2012 after a comprehensive consultation process and updated for minor amendments in December 2015. The ASF became effective on a “rolling basis” across the three key sectors in New Zealand, as shown below:

Sector	When did the ASF become effective
Public sector PBEs ^[1]	1 July 2014
For-profit entities ^[2]	1 April 2015
Not-for-profit PBEs ^[3]	1 April 2015

[1] Public Benefit Entities (PBEs) are reporting entities whose primary objective is to provide goods or services for community or social benefit rather than for a financial return to equity holders.

Public sector PBEs are PBEs that are public entities as defined in the Public Audit Act 2001, and all Offices of Parliament.

[2] For-profit entities for financial reporting purposes are reporting entities that are not PBEs.

[3] Not-for-profit (NFP) PBEs are PBEs that are not public sector PBEs (e.g. registered charities).

The framework is outlined in Proposals for the New Zealand Accounting Standards Framework Incorporating the Draft Tier Strategy. This was approved by the Minister of Commerce in April 2012.

Proposals for the New Zealand Accounting Standards Framework 734 KB

The Accounting Standards Framework was updated in December 2015 to reflect the legislative changes since 2012 and the then new descriptions of the Tier requirements.

Updated Accounting Standards Framework Dec 2015 391 KB

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Definitions

"Public accountability" is a defined term.

In accordance with the IASB definition, an entity has public accountability if:

its debt or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets); or
it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses. This is typically the case for banks, credit unions, insurance providers, securities brokers/dealers, mutual funds and investment banks.

Some entities may also hold assets in a fiduciary capacity for a broad group of outsiders because they hold and manage financial resources entrusted to them by clients, customers or members not involved in the management of the entity.

However, if they do so for reasons incidental to a primary business (as, for example, may be the case for travel or real estate agents, schools, charitable organisations, co-operative enterprises requiring a nominal membership deposit and sellers that receive payment in advance of delivery of the goods or services such as utility companies), that does not make them publicly accountable.

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Entities deemed to be publicly accountable

Under XRB A1, an entity is deemed to be publicly accountable in the New Zealand context if it is:

For periods beginning on or after 1 April 2014:

an issuer of equity securities or debt securities under a regulated offer;
a manager of registered schemes, but only in respect of financial statements of a scheme or fund;
a listed issuer;
a registered bank;
a licensed insurer;
a credit union;
a building society;
an entity or class of entities that is considered to have a higher level of public accountability by a notice issued by the Financial Markets Authority (FMA); and
an issuer under the transitional provisions of the Financial Reporting Act 2013.

An entity is not deemed to be publicly accountable if it is not considered to have a higher level of public accountability than other FMC reporting entities by a notice issued by the FMA.