Issue # 2/2013
The XRB and NZASB have issued the new for-profit tier structure as well as a package of mainly for-profit standards that includes the Reduced
Disclosure Regime
(RDR).
We outline the key features of the new for-profit tier structure and package of standards including RDR.
The new for-profit tier structure and package of standards and pronouncements are effective for reporting periods beginning on or after 1 December 2012, with early adoption permitted.
In April 2012, the XRB issued a new Accounting Standards Framework (the
Framework). The new Framework applies a multi-sector approach as well as setting out reporting tiers. Implementation of the Framework is being achieved in three stages over the 2012 to 2015 period.
In November 2012, the XRB completed stage one which mainly involves changes to the accounting standards for for-profit entities. These changes are effective for reporting periods beginning on or after 1 December 2012, although early adoption is permitted.
Stages two (mainly involving changes to the accounting standards for public sector public benefit entities) and three (mainly involving changes to the accounting standards for private not-for-profit public benefit entities) will be completed in due course and are expected to be effective for periods beginning on or after 1 July 2014 and 1 April 2015 respectively.
In order to operationalise the new Framework for for-profit entities, the XRB has issued the following:
XRB A1 ‘Accounting Standards Framework (For-profit Entities Update)’ : which establishes the for-profit entity tier structure and outlines which suite of accounting standards entities in different tiers must follow;
Accounting standards for Tier 1 and Tier 2 for-profit entities : a suite of accounting standards that Tier 1 (NZ IFRS) and Tier 2 (NZ IFRS RDR) forprofit entities should apply. The standards include the full NZ IFRS requirements with RDR concessions available to Tier 2 entities identified;
Accounting standards for Tier 3 for-profit entities (NZ IFRS Diff Rep) : which separates the current NZ IFRS Diff Rep concessions from NZ IFRS and establishes a separate suite of NZ IFRS Diff Rep accounting standards for
Tier 3 entities.
Accounting standards for Public Benefit Entities (NZ IFRS PBE) : which separates the current PBE specific requirements from NZ IFRS and establishes a separate NZ IFRS PBE suite of standards.

The new tier structure and NZ IFRS RDR are part of the process to increase harmonisation of accounting standards with Australia.
In advance of stages two and three of the implementation of the Framework, which will see PBEs moving to their own suite of standards based on IPSAS or to simple format reporting, the following tier structure is in place:
Tier Tier Criteria
For-Profit Entities
Tier 1
Tier 2
Publicly accountable entities 1
For-profit public sector entities with >$30 million expenses
Entities that are not publicly accountable (as defined) and for-profit public sector entities with ≤$30 million expenses
Tier 3 2 Entities that are not publicly accountable which elect to be in this tier and either: a) all of its owners are members of the entity’s governing body; or b) are not large 3
Accounting Standards
Full NZ IFRS
NZ IFRS RDR
NZ IFRS Diff Rep
Tier 4 2 Entities that were applying Old GAAP at 30
June 2011 or were established on or after 1
July 2011, are not publicly accountable, are not required to file financial statements, and are not large 3 and which elect to be in Tier 4
1.
PBEs that are not publicly accountable and either: a) all of its owners are members of the entity’s governing body; or b) are not large 3
4
Old GAAP (FRSs and SSAPs) and Old GAAP Diff Rep
Public Benefit Entities
All PBEs other than the below two categories NZ IFRS PBE
NZ IFRS PBE including Diff Rep concessions
2.
PBEs that were applying Old GAAP at 30
June 2011 or were established on or after
1 July 2011, are not publicly accountable and are not large 3
Old GAAP including Diff Rep concessions
1 The IASB’s definition of public accountability is used (set out in para 13 of XRB A1), supplemented by the deeming approach (set out in para 15 of XRB A1).
2 Tier 3 and 4 will be transitional tiers which will be removed when the legislative changes arising from the
Financial Reporting Bill come into force (by April 2015 at the latest).
3 An entity is currently defined as large if it exceeds any two of the following three thresholds: (a) total assets of $10m; (b) total income of $20m; (c) 50 employees (paras 25, 29, 65 and 77 of XRB A1 and section
19A of the Financial Reporting Act 1993).
4 A PBE which does not have public accountability but whose parent or ultimate controlling entity has the coercive power to tax, rate or levy to obtain public funds may qualify for differential reporting only where that PBE is not large 3 .
All for-profit entities are initially in Tier 1 as a default. However, if they meet the criteria to be in another tier, and elect to be in that other tier, then they may report in accordance with the requirements of the lower tier.
PwC In brief Page 2 of 9

Disclosure requirements
Tier 2, Tier 3 and Tier 4 for-profit entities must disclose:
(a) that the entity has elected to report in accordance with Tier 2, Tier 3 or Tier 4
(as appropriate) for-profit accounting standards; and
(b) the criteria that establish the entity as eligible to report in accordance with
Tier 2, Tier 3 or Tier 4 (as appropriate) for-profit accounting standards.
In addition, Tier 2 for-profit entities must disclose that they have applied disclosure concessions and Tier 3 and Tier 4 for-profit entities must disclose the extent to which they have applied available recognition and measurement differential reporting concessions.
Where a PBE qualifying entity takes advantage of differential reporting concessions the entity shall disclose that, for the purposes of complying with GAAP, it is a qualifying entity and has applied differential reporting concessions.
NZ IFRS RDR comprises a series of disclosure only concessions that have been applied to NZ IFRS accounting standards. Entities that meet the Tier 2 criteria and elect to report under Tier 2 will be able to apply NZ IFRS RDR.
The difference between NZ IFRS Diff Rep and NZ IFRS RDR is that NZ IFRS Diff Rep includes recognition, measurement and presentation concessions as well as disclosure concessions, whereas NZ IFRS RDR includes only disclosure concessions. An entity applying NZ IFRS RDR does not have to apply all the NZ IFRS RDR concessions: it can make disclosures in line with full NZ IFRS if it wishes.
Key recognition, measurement and presentation differences:
The removal of certain recognition, measurement and presentation concessions under
NZ IFRS Diff Rep will result in the following key changes under NZ IFRS RDR:
Standard Change from NZ IFRS Diff Rep to NZ IFRS RDR
NZ IAS 1 Presentation of
Financial Statements
A statement of changes in equity will have to be presented in all circumstances. There will no longer be the concession available to opt out of presenting a statement of changes in equity when: (a) there have been no transactions between the entity and the entity’s owners in their capacity as owners during the current or previous period; and (b) there have been no adjustments to the opening balance of retained earnings for the current or previous period.
NZ IAS 7 Cash Flow
Statements
NZ IAS 11
Contracts
Construction
A cash flow statement will now be required to be presented.
Profit will no longer be able to be recognised using the
‘completed contract method’ but will be recognised with reference to the stage of completion when the outcome of a contract can be estimated reliably.
NZ IAS 12 Income Taxes Entities will have to account for income tax in accordance with
NZ IAS 12 as they will no longer be permitted to use the taxes payable method.
NZ IAS 16 Property,
Plant and Equipment
Entities will no longer be permitted to use tax depreciation rates for accounting purposes in the situation where assets have not been revalued in accordance with the revaluation model.
NZ IAS 18 Revenue Entities will no longer have the choice between recognising revenue and expenses either net or gross of GST; they will have to recognise them net in accordance with NZ IAS 18.
PwC In brief Page 3 of 9

Change from NZ IFRS Diff Rep to NZ IFRS RDR Standard
NZ IAS 21 The Effect of
Changes in Foreign
Exchange Rates
NZ IAS 23 Borrowing
Costs
NZ IAS 36 Impairment of Assets
NZ IAS 38 Intangible
Assets
NZ IAS 41 Agriculture
FRS 42 Prospective
Financial Statements
Transactions will have to be translated at the spot rate at the date of transaction. Transactions settled in the accounting period will no longer be able to be translated at the settlement rate.
Entities will no longer have the option to either expense or capitalise borrowing costs; they will have to capitalise them in accordance with NZ IAS 23.
Entities will now be required to test goodwill, indefinite life intangibles and intangibles not yet available for use on an annual basis and not just when there is indication that the asset is impaired, as they could under NZ IFRS Diff Rep.
Entities are no longer permitted to expense all research and development (R&D) expenditure; they must recognise R&D expenditure in line with NZ IAS 38.
When amortising software, entities will have to allocate the depreciable amount on a systematic basis over its useful life and will no longer be permitted to use the rates adopted for income tax for this purpose.
There will no longer be a choice available to measure each class of biological assets and agricultural produce at either fair value or at cost; they will have to be measured at fair value.
Fair value and cost of livestock will no longer be able to be measured based on national average market values and national standard costs issued by the IRD.
Entities will now be required to present a cash flow statement whereas under NZ IFRS Diff Rep they could elect not to unless they had intended to publish one in their historical financial statements.
Entities that applied the taxes payable method under
NZ IFRS Diff Rep are no longer exempt from following the remeasurement principles of deferred tax in this standard.
NZ IFRIC 7 Applying the
Restatement Approach under NZ IAS 29
NZ SIC 32 Intangible
Costs – Web Site Costs
As with NZ IAS 38, entities are no longer permitted to expense all R&D expenditure.
Key disclosure differences:
Overall, the NZASB expects reductions in disclosures under NZ IFRS RDR; however, you will need to work through the detailed RDR concessions available to understand the extent to which they will reduce the level of disclosure in your entity’s financial statements.
PwC In brief Page 4 of 9

For-profit entities currently applying full NZ IFRS
There is no change for issuers and large for-profit public sector entities that currently apply full NZ IFRS, as they will continue to prepare full NZ IFRS compliant General
Purpose Financial Reports (GPFR).
For-profit entities which are eligible for, and elect to be in, Tier 2 may prepare their financial statements with fewer disclosures in accordance with NZ IFRS RDR. It is expected that a number of entities currently reporting in accordance with full
NZ IFRS will be able to drop down to report under NZ IFRS RDR under the new
Framework: for example, non-publicly accountable entities that are currently large and do not currently qualify to report under NZ IFRS Diff Rep because the owners and the governing body are separated.
PwC Insight
Entities that currently report under full NZ IFRS but are eligible for and will elect to report in accordance with Tier 2 accounting standards should consider early adopting NZ IFRS RDR to take advantage of the disclosure concessions available.
Early adoption of NZ IFRS RDR is available for entities that approve their GPFR on or after 13 December 2012.
For-profit entities currently applying NZ IFRS Diff Rep
Entities that currently prepare their financial statements under NZ IFRS Diff Rep and that will not have reporting requirements under the new legislative framework - for example, non-large (as newly defined) non-publicly accountable entities (including widely-held entities that will opt out or closely-held entities that will not opt in) - can continue to prepare GPFR under NZ IFRS Diff Rep and should not be affected by the new Framework.
Entities that currently prepare their financial statements under NZ IFRS Diff Rep but will have reporting requirements under the new legislative framework can either:
1) Continue to prepare GPFR under NZ IFRS Diff Rep until the new financial reporting framework legislation is enacted and comes into force (at which point they will have to move to Tier 1 or Tier 2 as Tier 3 and 4 will no longer exist); or
2) Transition to Tier 1 (NZ IFRS) or Tier 2 (NZ IFRS RDR) early.
PwC Insight
For entities that continue to report under NZ IFRS Diff Rep, the separate suite of
NZ IFRS Diff Rep standards is frozen at April 2011. However, these entities will have the option to adopt new amendments and standards issued in or after April
2011 on a standard by standard basis and apply the Diff Rep exemptions within these standards. This option is useful for subsidiaries of a group that does not apply Diff Rep or Tier 3 entities that will eventually move to Tier 1 or Tier 2 at which point they will have to apply all applicable reporting standards under
NZ IFRS.
PwC Insight
For-profit entities reporting under NZ IFRS Diff Rep that will have reporting obligations under the new legislative framework should consider when to transition to NZ IFRS (Tier 1) or NZ IFRS RDR (Tier 2). This will need to occur no later than when the new legislative framework is enacted and comes into force
(expected sometime in 2013 or 2014).
Entities considering transitioning to Tier 2 early will need to weigh up the costs of losing recognition, measurement, presentation and disclosure exemptions under
NZ IFRS Diff Rep against any benefit of disclosure concessions under
NZ IFRS RDR.
PwC In brief Page 5 of 9

For-profit entities currently applying Old GAAP
Similar to entities that currently prepare their financial statements under
NZ IFRS Diff Rep, entities that currently prepare GPFR under Old GAAP and that will not have reporting requirements under the new legislative framework, can continue to prepare GPFR under Old GAAP and should not be affected by the new Framework.
Entities that currently prepare their financial statements under Old GAAP but that will have reporting requirements under the new legislative framework can either:
1) Continue to prepare GPFR under Old GAAP until the new financial reporting framework legislation is enacted and comes into force; or
2) Transition to Tier 1 (NZ IFRS) or Tier 2 (NZ IFRS RDR) early.
PwC Insight
For-profit entities that currently report under Old GAAP but will have reporting obligations under the new legislative framework will need to plan their transition to NZ IFRS (Tier 1) or NZ IFRS RDR (Tier 2) applying the requirements of
NZ IFRS 1. This will need to occur no later than when the new Financial
Reporting Framework legislation is enacted and comes into force.
In considering the timing of their transition, the time and cost of transition should be weighed up against the benefits to users of enhanced reporting requirements.
Public benefit entities
There is no change for PBEs under stage one of the new Framework as they will continue to apply NZ IFRS as applicable for PBEs or if eligible NZ IFRS PBE Diff Rep, or Old GAAP (including Diff Rep concessions).
PwC Insight
Although there is currently no change to PBE reporting, PBEs should follow stages two and three of the roll out of the Framework and start planning for their transition to either IPSAS-based standards or Simple Format Reporting.
PwC Insight
The separate suite of NZ IFRS PBE standards is frozen at April 2011. PBEs are not permitted to apply amendments or new standards issued after 31 March 2011.
PwC In brief Page 6 of 9

XRB A1 contains the following requirements in relation to moving between tiers.
Moving into Tier 1
Tier 2 to Tier 1: A Tier 2 for-profit entity that subsequently becomes publicly accountable (as defined) shall apply full NZ IFRS in the reporting period in which it becomes publicly accountable.
A Tier 2 for-profit public sector entity that becomes large (total expenses >$30m) may continue reporting under NZ IFRS RDR for the reporting period in which it becomes large unless that entity was reporting under full NZ IFRS in the reporting period immediately preceding the annual period in which it became large.
Tier 3 or Tier 4 to Tier 1: A Tier 3 or Tier 4 for-profit entity that subsequently becomes publicly accountable shall apply full NZ IFRS in the reporting period in which it becomes publicly accountable. A Tier 3 or Tier 4 for-profit entity that no longer qualifies to apply those standards because it either becomes large or because the entity’s owners are no longer all members of the entity’s governing body, may continue to report in accordance with NZ IFRS Diff Rep or Old GAAP (as applicable) for the annual reporting period in which it no longer qualifies and for the following annual reporting period.
Moving into Tier 2
Tier 1 to Tier 2: A Tier 1 for-profit entity that is eligible to drop down to Tier 2 may elect to apply NZ IFRS RDR from the period in which it becomes eligible.
Tier 3 or Tier 4 to Tier 2: A Tier 3 or Tier 4 for-profit entity that no longer qualifies to apply those standards because either it becomes large or because the owners are no longer all members of the entity’s governing body, may continue to report in accordance with NZ IFRS Diff Rep or Old GAAP (as applicable) for the annual reporting period in which it no longer qualifies and for the following annual reporting period.
Moving into Tier 3
Tier 1 or Tier 2 to Tier 3: A Tier 1 or Tier 2 for-profit entity that becomes eligible to apply NZ IFRS Diff Rep either because it is no longer large or because all the owners become members of the entity’s governing body, shall not apply
NZ IFRS Diff Rep until the entity is eligible (for either reason) for two consecutive annual reporting periods.
Tier 4 to Tier 3: A Tier 4 for-profit entity that is no longer eligible to apply
NZ Old GAAP for any reason, can continue to report under Tier 4 for the period in which it became eligible for Tier 3 and the following period.
Moving into Tier 4
If a for-profit entity is eligible for, and elects to report under Tier 1, Tier 2 or Tier 3, it is then not permitted to subsequently move to Tier 4.
PwC In brief Page 7 of 9

To:
The following table sets out the standards that should be applied in transitioning between tiers.
Tier 1
Full NZ IFRS
Tier 2
NZ IFRS RDR
Tier 3
NZ IFRS (Diff
Rep)
Tier 4
NZ Old GAAP
From:
Tier 1
No first time adoption. Can no longer state compliance with
IFRS.
Apply:
Available RDR concessions.
No changes in recognition, measurement and presentation, so no need to apply
NZ IAS 8.
No first time adoption.
Can no longer state compliance with IFRS.
Apply:
Available Diff Rep concessions; and
NZ IAS 8 (Diff Rep) as the Diff Rep recognition, measurement and presentation concessions would be deemed changes in accounting policy.
Not permitted to move to Tier 4.
Tier 2 First time adoption of
IFRS.
Apply:
NZ IFRS 1 1 ; and
Paragraphs 14-27 of
NZ IAS 8 (to the extent that they do not conflict with
NZ IFRS 1) 2 .
No first time adoption.
Apply:
Available Diff Rep concessions; and
NZ IAS 8 (Diff Rep) as the Diff Rep recognition, measurement and presentation concessions would be deemed changes in accounting policy.
Not permitted to move to Tier 4.
Tier 3 First time adoption of
IFRS.
Apply:
NZ IFRS 1 1 ; and
Paragraphs 14-27 of
NZ IAS 8 (to the extent that they do not conflict with
NZ IFRS 1) 3 .
First time adoption of NZ IFRS RDR.
Apply:
NZ IFRS 1; and
Paragraphs 14-27 of
NZ IAS 8 (to the extent that they do not conflict with
NZ IFRS 1) 3 .
Not permitted to move to Tier 4.
Tier 4 First time adoption of
IFRS and NZ IFRS.
Apply:
NZ IFRS 1 1 .
First time adoption of NZ IFRS.
Apply:
NZ IFRS 1.
First time adoption of
NZ IFRS.
Apply:
NZ IFRS 1 (Diff Rep).
1 Compliance with NZ IFRS 1 without applying any disclosure concessions results in compliance with
IFRS 1. Voluntary changes in accounting policies shall be made only when such changes comply with the requirements in paragraphs 14-27 of NZ IAS 8.
2 Paragraphs 14-27 of NZ IAS 8 apply to changes in accounting policies (to the extent that they do not conflict with NZ IFRS 1), notwithstanding the statement in paragraph 27 of NZ IFRS 1 that NZ IAS 8 does not apply to the changes in accounting policies an entity makes when it first adopts NZ IFRS or to changes in those policies until after it presents its first New Zealand equivalents to IFRSs financial statements.
3 The requirement to apply paragraphs 14-27 of NZ IAS 8 to any changes in accounting policies may mean that such entities are unable to apply some of the concessions available in NZ IFRS 1.
PwC In brief Page 8 of 9

As summarised below, for-profit entities should:
1) Determine whether they expect to prepare GPFR under the new legislative framework; and
2) Decide under which tier, and when, they will elect to report.
Will the entity be required to prepare GPFR?
If Yes , determine which tier the entity will fall in
If No
Tier 1 (Full NZ IFRS):
No change.
Tier 2 (RDR):
Less disclosure if previously reported under full NZ IFRS.
No longer any recognition, measurement or presentation concessions if previously reported under NZ IFRS Diff Rep but potentially less disclosure under RDR.
Tier 3 or Tier 4:
Either continue to report under
NZ IFRS Diff Rep (Tier 3) or Old GAAP
(Tier 4) until Tier 3 and 4 drop out or transition to Tier 1 or Tier 2 early.
Follow current accounting until legislative changes become effective.
PBEs will continue to apply NZ IFRS as applicable for PBEs or if eligible,
NZ IFRS PBE Diff Rep or Old GAAP (including Diff Rep concessions) until stages two and three of the Framework are implemented.
Standard XRB A1 ‘Accounting Standards Framework (For-profit Entities Update)’ and the new standards including NZ IFRS RDR concessions can be found here: http://www.xrb.govt.nz/Site/Accounting_Standards/Current_Standards/New_Framework/Standards_fo r_For-Profit_Entities/Standards_for_FP_Tier_1_2_Entities_.aspx
If you wish to discuss this or any other NZ IFRS related matter, please contact your usual PwC contact or one of the following NZ IFRS specialists:
Michele Embling
Partner, Auckland michele.j.embling@nz.pwc.com
Mike Schubert
Partner, Auckland mike.s.schubert@nz.pwc.com
Stephen Hogg
Director, Auckland stephen.c.hogg@nz.pwc.com
Lyn Hunt
Director, Auckland lyn.c.hunt@nz.pwc.com
Karen Shires
Partner, Wellington
Karen.f.shires@nz.pwc.com
Robert Harris
Partner, Christchurch harris.r@nz.pwc.com
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