Financial reporting tools for For-Profit Entities

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For-profit entities


For-profit entities are reporting entities that are not public benefit entities (PBEs).

The definition of a PBE is as follows:
“PBEs are entities whose primary objective is to provide goods or services for community or social benefit, and where equity has been provided with a view to supporting that primary objective, rather than for a financial return to equity holders”
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NZ IFRS


New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) are based on International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
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In accordance with the IASB definition, an entity has public accountability if:


(a) 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
(b) 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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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

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This page contains content and resources that are relevant to for-profit entities with requirements to prepare financial statements in accordance with New Zealand Generally Accepted Accounting Practice (NZ GAAP).

Please view our other sites for content and resources relating to Public Benefit Entities or visit our Financial Reporting in New Zealand homepage.

Accounting Standards Framework overview

For-profit entities with requirements to prepare financial statements that comply with NZ GAAP are required to prepare financial statements in accordance with For-profit Accounting Standards as issued by the External Reporting Board (XRB).

The Accounting Standards Framework for for-profit entities has a tiered structure, whereby entities will fall into Tier 1 by default, but can opt-in to a lower tier if they meet the criteria of that tier. Tiers 3 and 4 were temporary and were withdrawn from the Accounting Standards Framework for periods beginning on or after 1 April 2015. 

The Accounting Standards Framework for for-profit entities is summarised in the below table.

  Entities Applicable Accounting Standards
Tier 1 NZ IFRS
Tier 2
  • Not “publicly accountable”
  • Not large for-profit public sector entities
NZ IFRS RDR

 

Tier 3 and Tier 4 for-profit entities

For periods beginning on or after 1 April 2015, Tier 3 and Tier 4 were withdrawn from the XRB’s accounting standards framework. Existing Tier 3 and Tier 4 for-profit entities that are required to (or choose to) continue preparing general purpose financial reports will need to move to either Tier 1 or 2 of the framework. This means that these entities would need to apply either NZ IFRS in full or NZ IFRS RDR for annual reporting periods beginning on or after 1 April 2015 (i.e., for 31 March 2016 year-ends and onwards).
For Tier 3 for profit entities that are currently using the differential reporting framework under NZ IFRS and that will move to NZ IFRS RDR, there are three main impacts:

  • Fewer disclosure requirements — NZ IFRS RDR permits significantly less disclosure, compared with both full NZ IFRS and the current differential reporting framework. The key exception is the cash flow statement, which is required under NZ IFRS RDR.
  • A loss of concessions relating to recognition or measurement — there are some, but not many, recognition and measurement concessions in the current differential reporting framework. For example, qualifying entities are not required to account for deferred tax. NZ IFRS RDR does not provide such concessions and requires the same recognition and measurement requirements as Tier 1 entities. This enables comparability and easy transition between Tier 1 and Tier 2, and minimises consolidation adjustments for groups. While some Tier 2 entities might be concerned about the loss of recognition and measurement concessions, many Tier 2 subsidiaries of Tier 1 parents will be unaffected, since many use the same accounting policies as their parent.
  • Harmonisation with Australia — NZ IFRS RDR is largely consistent with the RDR framework in Australia. There are only a few differences between NZ IFRS RDR and the Australian RDR framework, to reflect regulatory differences.

Small and medium-sized for-profit entities (SMEs), that are not required to prepare GPFR under the statutory framework, instead need to prepare special purpose financial statements (SPFR) for tax purposes, using minimum standards set by the Inland Revenue Department. Also, guidelines have been issued by the Chartered Accountants Australia and New Zealand for entities preparing SPFR.

How we can help you

We can help your organisation assess and identify the effects of converting your financial statements from your current reporting framework to NZ IFRS / NZ IFRS RDR. Specifically, we can assist with:

  • Identifying which accounting standards are the most relevant to your organisation by considering your most recent financial statements
  • Working with your personnel to complete an analysis identifying differences between the previous reporting requirements and NZ IFRS / NZ IFRS RDR that are applicable to your organisation
  • Identifying the different disclosures required under NZ IFRS / NZ IFRS RDR