Part 4: Have the changes resolved our concerns?

4.1
In this Part, we discuss the effect of changes since 2009 and whether the changes have resolved our concerns.

4.2
As noted in Part 2, we had two general concerns about adapting IFRS for the public sector. We were concerned about the complexity of the requirements, particularly for smaller entities, and the difficulty in applying many of the requirements in NZ IFRS to public benefit entities.

Overall, changes are encouraging

4.3
We are encouraged by the changes to accounting standards since we reported our concerns in 2009.

4.4
In our view, setting up the XRB as an independent standard-setter has had a positive effect on accounting standards for the public sector. We acknowledge the significant work carried out by the then Ministry of Economic Development and the XRB. Although there is still work to be done, we consider that public entities are now better positioned to report information that is useful for accountability and decision-making purposes.

4.5
The separation of accounting standards applying to for-profit entities and those applying to public benefit entities is sensible. This is because the principles in the PBE accounting standards are inherently more suitable for public benefit entities. The standards use language appropriate for the public sector, and guidance focuses on transactions common to public benefit entities.

4.6
Also, the tiered structure of the new Accounting Standards Framework is likely to help smaller entities achieve a better balance between the costs and benefits of general purpose financial reporting.

Positive changes in the new Accounting Standards Framework

4.7
Overall, the change to the new Accounting Standards Framework has been positive and augers well for the future of financial reporting in the public sector. The new Framework addresses our previous concerns by applying a multi-standards, tiered approach. By drawing on IPSAS, IFRS, and (where appropriate) Financial Reporting Standards developed in New Zealand, the XRB has put in place a comprehensive suite of PBE accounting standards, appropriate to the size and type of entity.

4.8
Previously, there were essentially only two tiers of reporting. Larger entities reported under the full suite of accounting standards. Smaller entities (that met certain criteria) reported under Differential Reporting Accounting Standards, which had fewer requirements.

4.9
The new Accounting Standards Framework has four tiers for public benefit entities, which are designed to reduce the complexity of reporting for smaller entities.

4.10
The reporting concessions that apply to Tier 2 reporting entities generally mean they need to make fewer disclosures than Tier 1 reporting entities. However, entities moving from the previous NZ IFRS Differential Reporting Accounting Standards will notice some additional reporting requirements, such as the requirement for a cash flow statement. This requirement will involve more work for entities and their auditors, but a cash flow statement is expected to provide useful information to users.

4.11
For Tier 3 reporting entities, the XRB has prepared a simple format reporting standard that is based on accrual accounting. The standard is about 60 pages, and optional reporting templates are supplied. The standard for these smaller entities is concise compared to the many accounting standards for larger entities. Again, the reporting requirements include a cash flow statement.

4.12
We are pleased to see that reporting requirements for smaller public benefit entities have been simplified by adding Tier 3 simple format reporting.

4.13
For Tier 4, the XRB has put aside many of the complexities associated with accrual accounting. It has produced a largely cash-based accounting standard for the smallest public benefit entities, which can be applied if their legislation allows them to use a cash-based standard. The Tier 4 standard is about 30 pages.

4.14
A Tier 4 reporting entity is likely to have fewer resources than a larger entity. An example of such an entity is a cemetery trustee. Volunteers with little or no knowledge of accounting will often perform the accounting function. To help these people and to make it easier for the very smallest entities to apply the standard, the XRB has prepared reporting templates to be used as a guide.

4.15
Although we are pleased that Tier 4 reporting entities can use the simplified cash reporting standard, we acknowledge that the standard might require some entities to disclose more information than they have in the past.

4.16
We encourage all public entities to take full advantage of any financial reporting concessions that are available in the tiered structure.

Good platform for future financial reporting

4.17
The new PBE accounting standards provide a good platform for future financial reporting by public benefit entities in the public sector.

4.18
The PBE accounting standards have resulted in numerous disclosure changes at a detailed level. However, overall, the required disclosures for larger entities remain similar to before.

4.19
We are pleased to see that recent changes to the accounting standard dealing with the presentation of financial statements have reinforced the need for preparers to consider the materiality of disclosures rather than disclose everything referred to by accounting standards. The standard allows preparers to "reduce the clutter" in financial statements by not reporting information that preparers consider not material for readers.

4.20
We would like to see public entities take more advantage of the flexibility available within the new PBE accounting standards to prepare general purpose financial reports that are more useful. There is scope to reduce the complexity of reporting by focusing on the information that is material to users.