NZARC Blog

The traditional framework of ‘generally accepted accounting principles in New Zealand’ will soon cease to exist, to be replaced by International Public Sector Accounting Standards (“IPSAS”). IPSAS have been based from International Financial Reporting Standards (IFRS) that is the accounting framework for the for-profit sector, and are being tailored for public sector accounting. We expect that the number of variances between IFRS and IPSAS will continue to grow over time. IPSAS are issued by the International Federation of Accountants (a private federation), and are set to be introduced in Switzerland, and other jurisdictions globally.

Why the change?

New Zealand has attempted to provide a bridge for the public sector by including some concessions with the New Zealand equivalents to IFRS. However, the conclusion was reached that an entire new framework is required. IPSAS was selected as the most appropriate.

Who is impacted?

All registered charities in New Zealand (over 25,000 at latest count) will be required to prepare financial statements under IPSAS.

Incorporated Societies have not yet been caught, as there is law commission review of surrounding legislation. It is foreseeable that they will follow the structure set for charities.

Tiered reporting

Although the principles of measurement and recording will be the same for all entities, the new framework is introducing tiered reporting. It is expected, for example, that around 96% of charities will fall under simple format reporting.

Simple format reporting is proposed to be a fill-in-the-box sort of exercise, with various templates available for different types of entities. This will simplify the reporting process, however does not negate the requirement to follow IPSAS principles. This will be the most complex requirement for not-for-profits. For many very small entities (annual expenses less than $40,000), then cash-based accounting will likely be allowed.

Who is creating this change?

On 1 July a new governmental organisation, the External Reporting Board (XRB) was established. The XRB is an Independent Crown Entity with statutory functions on accounting and auditing. It has created two sub-boards to cover these key areas. The XRB initial Board’s philosophy is to maintain user-needs focus, and to match financial reporting requirements with needs.

When does this apply?

The first financial statements likely to be impacted are for the year ending 30 June 2015, and entities can early adopt in 2014. This is dependent on the process of the consultation process. However, balance sheets two years before the introduction date will need to be adjusted, so the first impact of these changes will be as early as 30 June 2012.