What is Generally Accepted Accounting Practice (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.

The law requires entities to:

keep proper accounting records; and
prepare financial statements in accordance with generally accepted accounting practice (GAAP) or in some specified cases non-GAAP standards; and
have those statements audited; and
register or lodge those statements or otherwise distribute those statements to interested parties, e.g. shareholders, funders or members.

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Who’s included?

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

Reporting entities are required to comply with XRB standards that are either GAAP or “non-GAAP" (i.e. cash-based standards issued by the XRB).

Here are some examples of entities required by law to prepare financial reports that apply XRB accounting standards:

“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.

XRB A1 is the overarching standard which gives effect to the Accounting Standards Framework.

It sets down a financial reporting strategy for New Zealand and establishes which suite of reporting standards and reporting tiers that apply to which entities.

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

This can assist you to identify the relevant tier and associated financial reporting requirements for your entity or whether you are exempt from them.

Read more:

> Explanatory Guides

> Why report?

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Who’s excluded?

Most New Zealand-based for-profit entitles (e.g. companies)—including many small to medium-sized enterprises (SMEs)—have no obligation to prepare financial reports based on XRB standards and can instead prepare special purpose financial reports (SPFRs).

This means you would follow Inland Revenue Department (IRD) Special Purpose Financial Reports or report based on your own choice.

Certain public sector Public Benefit Entities (PBEs) and not-for-profit PBEs are permitted by legislation to prepare financial statements in accordance with “non GAAP standards” issued by the XRB (i.e. cash-based standards). Small charities with total annual expenses of less than $125,000 are one such case.

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Inland Revenue Department (IRD) Special Purpose Reporting

Most New Zealand-based for-profit entitles (e.g. companies)—including many small to medium-sized enterprises (SMEs)— need to comply only with Inland Revenue Special Purpose Reporting requirements set down in the Tax Administration Act 1994.

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

This move has resulted in compliance cost savings for those that had previously had to report under the XRB standards.

Find out more on the > IRD website

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Other reporting choices

If your entity Is not required to prepare financial reports based on XRB standards, you can follow the Chartered Accountants Australia and New Zealand (CAANZ) optional Special Purpose Financial reporting package.

Read more:
Find out more on the > CAANZ website >
Your entity can voluntarily elect to prepare its financial reports in accordance with XRB standards.

Read more:
[Link to: Are you are PBE?]

Following either of these options will also meet the minimum required Inland Revenue tax reporting requirements.

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