| XRB and the NZASB have issued four Exposure Drafts (EDs) together with accompanying Invitations to Comment relating to the new Accounting Standards Framework for for-profit entities.
The issuing of the EDs follows the XRB's decisions on the content of the Accounting Standards Framework. Those decisions have also been incorporated into a document entitled "Proposals for the New Zealand Accounting Standards Framework" which was submitted to the Minister of Commerce in accordance with section 34A of the Financial Reporting Act 1993 and approved by the by the Minister on 2 April 2012.
Purpose of the Exposure Drafts
The four EDs are designed to operationalise the new Accounting Standards Framework as it applies to for-profit entities.
The four EDs are as follows:
- ED External Reporting Board Standard A1 Accounting Standards Framework (For-profit Entities Update) (XRB A1 (FP Entities Update)) - issued by the XRB;
- ED 2012-1 Framework: Tier 1 and Tier 2 For-profit Entities (NZ IFRS) - issued by the NZASB;
- ED 2012-2 Framework: Tier 3 For-profit Entities (NZ IFRS Diff Rep) - issued by the NZASB; and
- ED 2012-3 Public Benefit Entities (NZ IFRS PBE) - issued by the NZASB.
Comments on these Exposure Drafts are requested by 3 August 2012. Subject to comments received, the resulting Standards will be issued as soon as possible after that date to enable eligible for-profit entities to take advantage of the reduced disclosures proposed for Tier 2 entities.
ED XRB A1 (FP Entities Update)
ED XRB A1 (FP Entities Update) is the first of three revisions the XRB plans to make to Standard XRB A1 - the Standard that defines which standards entities must follow. The first revision gives effect to the new Accounting Standards Framework for for-profit entities, while leaving the existing accounting standards framework in place for public benefit entities.
ED XRB A1 (FP Entities Update) proposes that there be two permanent for-profit tiers (Tier 1 - full NZ IFRS and Tier 2 - NZ IFRS RDR) supplemented by two interim for-profit tiers (Tier 3 - NZ IFRS Diff Rep and Tier 4 - Old GAAP). Tier 3 and Tier 4 maintain the status quo for for-profit entities that currently report using NZ IFRS differential reporting or Old GAAP (FRSs and SSAPs). The XRB plans to withdraw Tier 3 and Tier 4 once the legislative amendments announced by the Government are enacted. Those amendments are expected to remove the requirement for most small and medium sized for-profit entities to report in accordance with generally accepted accounting practice.
Although there will be four for-profit tiers in the interim, only one set of standards is new: Tier 2 standards for NZ IFRS RDR. The standards for Tiers 1, 3 and 4 will be the same as those currently being used.
NZASB Exposure Drafts
In order to give effect to the for-profit Accounting Standards Framework, the NZASB plans to take the current suite of NZ IFRSs (which includes specific requirements for public benefit entities and differential reporting concessions) and break it into three suites of NZ IFRS:
- NZ IFRS and NZ IFRS with RDR (for for-profit entities Tier 1 and Tier 2);
- NZ IFRS Diff Rep (for for-profit entities applying NZ IFRS with differential reporting concessions (for-profit entities Tier 3)); and
- NZ IFRS PBE (for public benefit entities applying NZ IFRS with PBE requirements and including differential reporting concessions)
The establishment of these three suites reflects the approach taken in ED XRB A1 (FP Entities Update).
NZ IFRS will be the current suite of NZ IFRS, so no ED is required to establish this suite of standards. NZ IFRS RDR will result from the finalisation of ED 2012-1 and incorporation of RDR concessions into NZ IFRS.
ED 2012-1 Framework: Tier 1 and Tier 2 For-profit Entities (NZ IFRS)
ED 2012-1 contains proposals for the accounting standards that will apply to Tier 1 and Tier 2 for-profit entities under the new Framework (NZ IFRS and NZ IFRS RDR respectively).
An exposure draft for NZ IFRS RDR (a reduced disclosure version of NZ IFRS) was issued in September 2011 - it accompanied the Consultation Paper on the for-profit Accounting Standards Framework issued by the XRB in September 2011. Since then some additional NZ IFRSs have been issued. ED 2012-1 contains the proposed RDR concessions for those additional Standards, together with other amendments to the NZ IFRS RDR suite of standards as previously exposed. Although the comment period for the September 2011 NZ IFRS RDR ED has now closed, the NZASB would be pleased to receive comments on that Exposure Draft in addition to comments on the proposals in ED 2012-1. The September 2011 NZ IFRS RDR ED is available on the website.
ED 2012-2 Framework: Tier 3 For-profit Entities (NZ IFRS Diff Rep) and ED 2012-3 Public Benefit Entities (NZ IFRS PBE)
Technical and drafting adjustments are necessary to establish the NZ IFRS Diff Rep and NZ IFRS PBE suites of standards. ED 2012-2 and ED 2012-3 contain proposals for these amendments and will result in the establishment of separate suites of standards for NZ IFRS Diff Rep and NZ IFRS PBE (rather than all being in the one set of standards as currently). There will be no substantive change to existing reporting requirements resulting from this separation and no mandatory future changes are proposed.
NZ IFRS Diff Rep will apply until Tier 3 is withdrawn following the anticipated enactment of legislative changes. Although there will be no mandatory changes to these standards, there may be some entities, such as for-profit entities within groups, that wish to update their accounting policies to those of the group. ED 2012-2 proposes that Tier 3 entities be permitted, but not required, to apply recently approved NZ IFRSs.
NZ IFRS PBE will apply to public benefit entities until the new Accounting Standards Framework for PBEs becomes effective.
For further details see here.