Recent history of our Accounting Standards' Frameworks
In September 2009 the ASRB released a discussion document: Proposed Application of Accounting and Assurance Standards under the Proposed New Statutory Framework for Financial Reporting.
That document was a companion to the Ministry of Economic Development (MED) discussion document The Statutory Framework for Financial Reporting, which was issued at the same time.
The MED document considered the circumstances under which the law should impose requirements on entities to prepare, publish and obtain assurance on their financial reports (known as general purpose financial reports or GPFR).
The ASRB document outlined tentative proposals on the accounting standards to be used by entities required to prepare GPFR under the MED document, and the level of assurance that should be provided on those reports.
In broad terms, the ASRB discussion document proposed:
- a multi-standards framework with standards for for-profit entities based on International Financial Reporting Standards (IFRSs)
- standards for public sector public benefit entities (PBEs) based on International Public Sector Accounting Standards (IPSASs)
- an IPSAS-based “NFP application” for not-for-profit public benefit entities.
It also proposed the use of tiers in each sector with differential reporting in the lower tiers to help match reporting costs and benefits.
In relation to assurance, the discussion document proposed that audits be required for higher tiers and reviews for the lowest tier, based on International Standards on Auditing (ISAs) and International Standards on Review Engagements (ISREs).
The ASRB received 76 submissions from a wide cross-section of business, accounting, academic, for-profit, public sector and not-for-profit organisations, as well as from professional bodies.
The high number and wide scope of submissions provided the Board with a broad cross-section of views across the constituency.
In terms of the main proposals, there was general agreement among respondents on some key elements, in particular that:
- a user-information focus should prevail
- sectors are useful in considering this
- the status quo is not satisfactory for the future.
However, respondents were split between opposition and support for sector-specific standards.
There was general agreement about the usefulness of tiers, but some differing views about the criteria that should be used to define them.
There were also varying views about the desirability of using pure international standards, with this view usually related to the relevance of the standards to the respondent and their degree of confidence in the robustness of the standards.
There was broad support for the assurance proposals, but some concerns that reviews may not reduce assurance costs as much as some entities would like.
After considering the feedback, the ASRB concluded that the key issue for it to consider was whether a single or multi-standards framework should be adopted.
This was the area of greatest diversity of views in submissions. It was also fundamental to the overall accounting standards framework approach.
In order to fully understand all the matters that would affect this decision the Board programmed a series of in-depth discussions on specific framework issues.
Consideration of these issues occurred over a series of ASRB meetings during 2010 and 2011. The in-depth topics considered were:
- convergence with Australia and the effect this should have on standard-setting
- the broad approach to accounting standards for for-profit entities
- the viability of IPSASs as an alternative set of standards for public sector PBEs
- the viability of developing an NFP application based on IPSASs
- the viability of enhanced NZ equivalents as an accounting standards option
- non-technical factors (such as professional specialisation, mobility and education) and how they are affected by the single vs multi-standards framework options
- tier structures and criteria.
The deliberations on these individual topics informed the Board’s eventual decision on whether a single or multi-standards framework should be adopted and what the tier framework should look like.
Multi-standards position paper
The ASRB concluded that user needs could not be adequately addressed by a single set of accounting standards applying to all entities required to prepare general purpose financial reports (GPFR) under the MED framework.
Accordingly, the ASRB proposed that the new accounting standards framework should consist of two sets of accounting standards — one applied by entities with a for-profit objective and another set applied by entities with a public benefit objective.
At its first meeting on 1 July 2011, the new XRB Board endorsed and confirmed this approach.
On 14 September 2011 the XRB Board issued a position paper outlining the rationale for the multi-standards decision.
The ASRB’s view (endorsed by the XRB Board) was that user needs should be the primary criterion for assessing alternative standards frameworks.
Which of the two major alternatives—multi standards vs an enhanced New Zealand equivalents to IFRS—would best address the information needs of users? This was a key consideration for the ASRB in reaching its conclusion.
Work undertaken by an ASRB/FRSB Working Group clarified that there was a limit to which IFRSs could be adapted for the purposes of PBE reporting.
Work on both the International Accounting Standards Board (IASB) and the International Public Sector Accounting Standards Board (IPSASB) conceptual frameworks was then ongoing and because of this the XRB Board expected divergence between these two sets of frameworks.
So, its view was that this was likely to be an increasing difficulty—especially over the medium term—and so it concluded that the single standard option would be unlikely to adequately meet user needs across all sectors.
Greater benefit for users would result from a multi-standards approach in the future.
Key public sector stakeholders had indicated a similar preference for multi-standards during a limited consultation exercise over IPSASB governance and funding.
The consensus resulting from those discussions was that IFRSs are increasingly less suitable as a base for public sector accounting standards and that a move to IPSASs was appropriate.
A Working Group established by the ASRB to consider not-for-profit reporting issues had reached a similar conclusion.
This view was also supported by the majority of PBE respondents to the September 2009 discussion document.
The multi-standards decision established the parameters for the new Accounting Standards Framework.
The XRB Board proposed that this consist of two different sets of standards:
- NZ IFRSs and relevant FRSs for for-profit entities
- PBE Standards based on IPSASs (modified for New Zealand) for public-benefit entities.
On 14 September 2011, the XRB Board issued two consultation papers outlining the proposed frameworks for for-profit entities and PBEs.
2011 Government announcement
The release of the Accounting Standards Framework documents followed the Government's announcement on 14 September 2011 of changes to the financial reporting framework.
The new legislative framework would involve a number of significant changes, including:
- the removal of the statutory requirement on most small to medium enterprises (SMEs) to prepare financial reports that comply with generally accepted accounting practice
- a requirement for registered charities to prepare general purpose financial reports.
Submissions and deliberations
Ninety-nine submissions were received on the 2011 consultation papers.
Respondents indicated general support for the overall shape of the Accounting Standards Framework.
However, a number of specific issues were raised and these were carefully considered by the XRB Board at the February and March 2012 meetings.
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In March 2012 the XRB Board finalised the new Accounting Standards Framework.
Overview of Accounting Standards Framework
A two-sector, multi-standards accounting standards framework applies as follows.
- Tier 1 (full NZ IFRSs) applies to entities that have public accountability (as defined) and for-profit public sector entities that are large (as defined).
- Tier 2 (NZ IFRS Reduced Disclosure Regime with no recognition and measurement concessions) applies to entities without public accountability and for-profit public sector entities that are not large, which elect to be in Tier 2.
Public benefit entities
- Tier 1 (full PBE Standards) applies to entities that have public accountability (as defined) and entities that are large (as defined).
- Tier 2 (PBE Standards Reduced Disclosure Regime) applies to entities without public accountability and entities that are not large, which elect to be in Tier 2.
- Tier 3 (PBE Simple Format Reporting Standard – Accrual) applies to entities without public accountability and with expenses ≤$2 million, which elect to be in Tier 3.
- Tier 4 (PBE Simple Format Reporting Standard – Cash) applies to entities allowed by law to use cash accounting and which elect to be in Tier 4.
Standards for NFP entities
One of the proposals in the PBE Accounting Standards Framework Consultation Paper was for small PBEs to be able to prepare financial reports in accordance with a simple format reporting approach.
This would involve a stand-alone, easy-to-read Simple Format Reporting Standard, accompanied by a series of “fill-in-the-blanks” type templates.
Development of the Simple Format Reporting Standard and templates was based on a report from a working group established by the ASRB in 2010 to advise on what simple format reports for not-for-profit entities might contain.
Not-for-profit research (2011–2012)
While developing the simple format reporting standards the XRB commissioned research into the common transactions of Tier 3 and 4 registered charities.
NFP reporting entity working group (2012)
To help develop accounting standards for not-for-profit entities, the NZASB established a working group to consider how reporting entities should be defined in the NFP sector.
This issue is particularly important because entities can take many different legal forms, including unincorporated bodies.
The working group’s suggestions will be considered by the NZASB as part of its enhancement of (Tier 1 and Tier 2) PBE Standards to make them more applicable to the NFP sector.
Once the accounting standards framework was finalised, the XRB Board made recommendations to the Minister of Commerce about the tier structure for general purpose financial reporting.
This was in a document Proposals for the New Zealand Accounting Standards Framework Incorporating the Draft Tier Strategy, which was submitted to the Minister on 22 March 2012 in accordance with the requirements of Section 34A of the Financial Reporting Act.
The Minister approved the document in accordance with Section 34D of the Act on 2 April 2012.
The XRB took responsibility as of 1 July 2011 for issuing accounting standards in New Zealand.
The accounting standards in the old Accounting Standards Framework were issued by the former ASRB and subsequently the XRB or NZASB. They apply for periods beginning on or before 30 November 2012.
Before then, accounting standards were prepared by the then New Zealand Institute of Chartered Accountants (now CA ANZ) and submitted to the Accounting Standards Review Board (ASRB) for approval and issue.
Under the Financial Reporting Act 1993 (amended by the Financial Reporting Amendment Act 2011), the XRB is a legal continuation of the ASRB.
Therefore the legal status of standards issued by the ASRB was unaffected by the transition to the XRB.
All accounting standards on issue on 30 June 2011 were carried across to the XRB and are included in the suite of old Framework standards (apart from a small change to the copyright page that does not affect the standard).
The XRB, together with its sub-Board the NZASB, took responsibility as of 1 July 2011 for issuing all accounting standards in New Zealand.