Accounting Standards Framework

For-profit Not-for-profit Public Sector

Overview

The current accounting standards framework involves a multi-standards, multi-tiered approach.

XRB A1 is the overarching standard which gives effect to the framework. 

XRB A1 is the overarching standard which gives effect to the 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.

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.

Go to the top of page

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. 

The table summaries the current accounting standards framework.

 For-profit Entities
TierEntity typeStandards

Tier 1

Has public accountability1 or is a large for-profit public sector entity with total expenses > $30million

NZ IFRS

Tier 2

Has no public accountability, is not a large for-profit public sector entity, has total expenses < $30million but > $2million, and elects to be in Tier 2

NZ IFRS Reduced Disclosure Regime (NZ IFRS RDR)

 

 Public Benefit Entities (PBEs)
TierEntity typeStandards

Tier 1

Has public accountability1 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 (PSFR-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 (PSFR-C)

 


Go to top of page 

Background

In March 2012, the XRB Board issued a document outlining the then new Accounting Standards Framework.  

This became effective progressively during 2012 to 2016.

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.

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


Definitions

"Public accountability" is a defined term.

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

  1. 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
  2. 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.

Go to top of page

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.