Accounting Standards for SMEs are Changing

The Financial Reporting Act 2013 comes into effect on 1 April 2014, meaning changes to the way 95% of New Zealand businesses report.

Under the new legislation, most small and medium sized businesses will not have to follow XRB accounting standards (also known as Generally Accepted Accounting Practice), but will still need to produce accounts for governance purposes, for the IRD and for the bank. Larger businesses and those issuing debt or equity securities, will have the range of standards simplified from four to just two suites of standards - Full Standards or Reduced Disclosure Standards.

The following table sets out an overview of the reporting obligations of entities under the various legislation.

For a printable copy of the below info graphic please click here.

You need to know your Standard

You need to determine your new statutory reporting requirement


Organisation Type Current Accounting Standards New Accounting Standards
Issuers and Other “FMC Reporting Entities”

New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS)

New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS)

Large Entities (who are not FMC Reporting Entities)
New Zealand entities with:
  • revenue >$30m or assets >$60m; or
  • shareholders >10 that don’t opt-out of the financial reporting requirements

Overseas companies or NZ subsidiaries of overseas companies or NZ business units of overseas companies with:

  • revenue >$10m or assets >$20m

 

New Zealand Equivalents to International Financial Reporting Standards Reduced Disclosure Regime (NZ IFRS RDR)

New Zealand Equivalents to International Financial Reporting Standards Reduced Disclosure Regime (NZ IFRS RDR)

Medium-Sized Entities
New Zealand entities with:

  • revenue =$30m or assets =$60m; or
  • Shareholders =10 that don’t opt-in to the financial reporting requirements

New Zealand Equivalents to International Financial Reporting Standards Reduced Disclosure Regime (NZ IFRS RDR)

or

New Zealand Equivalents to International Financial Reporting Standards Differential Reporting (NZ IFRS Diff Rep)

or

“Old GAAP” (old New Zealand domestic standards – FRS’s and SSAP’s)

Not required to prepare General Purpose Financial Statements or to follow XRB Accounting Standards; but will need to comply with Inland Revenue Special Purpose Reporting requirements for tax purposes

Small Entities
New Zealand entities with:

  • revenue =$2m or assets =$1m; or
  • full-time equivalent employees = 5

 New Zealand Equivalents to International Financial Reporting Standards Reduced Disclosure Regime (NZ IFRS RDR)

or

New Zealand Equivalents to International Financial Reporting Standards Differential Reporting (NZ IFRS Diff Rep)

or

“Old GAAP” (old New Zealand domestic standards – FRS’s and SSAP’s)

or

The Financial Reporting Order (FRO)

Not required to prepare General Purpose Financial Statements or to follow XRB Accounting Standards; but will need to comply with Inland Revenue Special Purpose Reporting requirements for tax purposes

If you are following XRB Standards you may need to change which standards you are following

If you are still following XRB Standards after 1 April 2014...

you will need to use either full NZ IFRS (Tier 1 Standards) or NZ IFRS RDR (Tier 2 Standards).  If you are currently using NZ IFRS Diff Rep or Old GAAP (FRSs and SSAPs) you will need to move to NZ IFRS RDR no later than reporting periods beginning on or after 1 April 2015.

NZ IFRS RDR is NOT the same as NZ IFRS Diff Rep.  Moving from Diff Rep to RDR will involve:

  • some changes to recognition and measurement of certain transactions e.g. using the deferred tax method
  • some changes to presentation of financial statements e.g. a Statement of Cash Flows is required
  • some changes to disclosures in financial statements and notes e.g. some new disclosures and some existing disclosures not required
  •  application of NZ IFRS 1 First-time Adoption of New Zealand Equivalents to International Financial Reporting Standards which requires restated comparatives for the previous year.

Click here for a table that identifies high level differences in the recognition, measurement, presentation and disclosure requirements between NZ IFRS RDR and NZ IFRS Diff Rep for for-profit entities. 

If you are preparing special purpose reports after 1 April 2014...

then as a minimum you will need to comply with the tax reporting requirements established by Inland Revenue.  Those requirements are set in accordance with sections 21B and 21C of the Tax Administration Act 1994 and comprise:

  • a requirement to prepare an IR10 annually
  • a requirement to be able to provide to IRD on request financial statements that support the IR10 and which:
    • based on double entry accrual accounting
    • which include a balance sheet, profit or loss statement, statement of movement in shareholders funds, supporting notes and schedules, statement of accounting policies and changes thereto, financial statements to tax reconciliation, and a schedule of specified associated person transactions.

Please see the Inland Revenue website for more information.

Alternatively entities required to prepare special purpose reports may either voluntary follow XRB Standards (i.e. NZ IFRS RDR) or the NZICA optional special purpose financial reporting package.  Following either of these options will meet the Inland Revenue tax reporting requirements. 

The NZICA special purpose financial reporting package provides for a more sophisticated level of reporting than the tax reporting requirements but is not as sophisticated as the XRB Standards. The NZICA package comprises:

  • a statement of profit or loss
  • balance sheet
  • either a statement of movements in equity, or equivalent disclosure in the notes.

The NZICA special purpose package does not require a statement of cash flows and is based primarily on historical cost basis of measurement.  Please see the NZICA website for more information.

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